Tuesday, March 31, 2009

Ilargi: It's been a while since I gave up the stage for Dan W., in my view his writing suffered from his attempt to do too much at once. Losing his job may have taken some adapting as well. Somewhat ironically perhaps (or maybe it was just what he needed), right after announcing his -partial- retreat from his blog Ashes Ashes, Dan writes his best (that is, in my humble opinion, of course) and most coherent piece in a long time. For which I gladly step aside for a moment. I’ll comment on the articles below, and many more to come, in today's dinnertime post, which will be up around 5.30 PM EDT.

DanW.: Oooommmmmmmmm

As return readers know, my mantra with regard to the coming economic (and societal) collapse is frightening simple: The "Growth" upon which we have come to rely in order to maintain our "way of life" is done, finished. Ever since Tricky Dick unilaterally took us off of the gold standard in 1971 we have been hurdling toward this moment in time. We have clung desperately to the illusion of growth for decades, and now that illusion has been summarily smashed to bits on the rocky shores of a Ponzi economy and hundreds of trillions of dollars in unserviceable debt. It's really that simple. We have existed, subsisted, for decades upon the "wealth" created by growth that wasn't in fact growth at all. It was debt. And without sustained growth, we die. Society collapses. But we CANNOT grow anymore because our Ponzi world has reached the end of the line. There's no more money to bilk because there's no more money! And so the only direction is down. Nature abhors a vacuum. Down, down, down.

Oooommmmmmmmm Ooooommmmmmmmmmm

Sure the market will have its ups and downs over the coming months, but real growth in our GDP simply cannot occur. It cannot. It is not only mathematically impossible, it violates the laws of physics and existence as we understand them. GDP cannot grow when that GDP's growth relies upon 72% consumer spending, and yet there are no more consumers!! And there are no more consumers because all of the consumers for the past decade have been buying everything with debt!

Oooommmmmmmmm Ooooommmmmmmmmmm

And here come our sage leaders, spending trillions MORE dollars (more debt) to try and loosen the credit markets so that the people can get more loans and spend more money that they don't have! And all that happens is that our Ponzi nation blows up that balloon one more time, and 300 million people sit atop it, and eventually it too explodes in a haze of shredded latex and spittle!!

Oooommmmmmmmm Ooooommmmmmmmmmm

And what happens, you may wonder, to a society that has negative growth, year after year? It falls apart. The monies and "wealth" that were used to fund social services and retirement savings and health care and infrastructure go away.

Oooommmmmmmmm Ooooommmmmmmmmmm

You see? That is why I am a "doomer". I am a doomer because I understand the laws of nature. I understand that you cannot cure obesity with more Big Macs. I understand that we have levereged ourselves to death, and now it's simply a matter of time before what we currently recognize as "WE" exists no longer. Barack Obama said during his election campaign that "...we will not apologize for our way of life...". He of course misses the point. No apology needed. What IS needed, however, is simple acknowledgement that our way of life is through. GROWTH IS DONE. We have grown and grown, for years upon years, on the creation of wealth based virtually entirely upon a Ponzi system of international commerce, and now it's all crashing. It must crash. It's not real. It's a quadrillion dollar charade. And the game is up. The game is up.

Oooommmmmmmmm Ooooommmmmmmmmmm

Ilargi: An absolute must see video -Don't miss it!- from France, with -very- outspoken analyst Max Keiser. Good luck in Europe, Obama.

Max Keiser: These guys are financial terrorists. They should be decapitated.[..]

This is counterfeiting to go along with fraud and embezzlement.[..]

This is a pre-planned financial holocaust by financial terrorists. I think if Bin Laden would be running the central bank in the US he would be doing a much better job and less damage.

….they (Goldman Sachs, JP Morgan et al) are systematically undermining the entire system. They are creating a mechanism to carve out equity and capital for themselves at the expense of society at large.

So in the United States, unemployment is skyrocketing. The uninsured is skyrocketing. The social fabric is coming unglued. You have riots all over the world…in Iceland and other countries due to this financial terrorism that was pre-meditated, on purpose and should be addressed as such.

There is a double standard. Why is the US pursuing so-called terrorists in nations like Afghanistan when they let these guys roam free on Wall Street? They’re the worst criminals of all – they do far more damage.

Interviewer:Let’s leave Afghanistan out of this…

Max Keiser:But why? It’s a great source of poppy and heroin which fuels a lot of these bankers bonuses. Let’s be frank about that.

US Treasury Secretary Tim Geithner has unveiled his long-awaited plan to put the US banking system back in order. In doing so, he has refused to tell the ‘dirty little secret’ of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction. The Geithner Plan, his so-called Public-Private Partnership Investment Program or PPPIP, as we have noted previously is designed not to restore a healthy lending system which would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets without demanding they change their business model. Yet, one might say, won’t this eventually help the problem by getting the banks back to health?

Not the way the Obama Administration is proceeding. In defending his plan on US TV recently, Geithner, a protégé of Henry Kissinger who previously was CEO of the New York Federal Reserve Bank, argued that his intent was ‘not to sustain weak banks at the expense of strong.’ Yet this is precisely what the PPPIP does. The weak banks are the five largest banks in the system. The ‘dirty little secret’ which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality.

The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called Credit Default Swaps. In 2000 the Clinton Administration then-Treasury Secretary was a man named Larry Summers. Summers had just been promoted from No. 2 under Wall Street Goldman Sachs banker Robert Rubin to be No. 1 when Rubin left Washington to take up the post of Vice Chairman of Citigroup. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century, to be released this summer, Summers convinced President Bill Clinton to sign several Republican bills into law which opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some $5 billion in lobbying for these changes after 1998 was likely not lost on Clinton.

One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act that prohibited mergers of commercial banks, insurance companies and brokerage firms like Merrill Lynch or Goldman Sachs. A second law backed by Treasury Secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US Government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called Over-the-Counter (OTC) derivatives like Credit Default Swaps, such as those involved in the AIG insurance disaster, (which investor Warren Buffett once called ‘weapons of mass financial destruction’), be free from Government regulation.

At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary. Today, Geithner’s old boss, Larry Summers, is President Obama’s chief economic adviser, as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.

What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance. Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion. After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy. This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. Ooohh. Uh Huh?

This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function. This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode. That is pre-programmed as worsening economic recession mean corporate bankruptcies are rising, home mortgage defaults are exploding, unemployment is shooting up.

This is a situation that is deliberately being allowed to run out of (responsible Government) control by Treasury Secretary Geithner, Summers and ultimately the President, whether or not he has taken the time to grasp what is at stake. Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation, including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to ‘federalize’ the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.

Home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record, as demand plummeted and foreclosures rose. The S&P/Case-Shiller index’s decrease was more than forecast and compares with an 18.6 percent decrease in December. The gauge has fallen every month since January 2007, and year- over-year records began in 2001. A glut of unsold properties may keep prices low, shrinking household wealth and damping spending. Still, sales of new and previously owned homes rose in February, indicating the housing slump, now in its fourth year, may ease as policy efforts to unclog credit and aid borrowers begin to take hold.

"At this point it doesn’t look great for the near term," Robert Shiller, chief economist at MacroMarkets LLC and a co- creator of the home price index, said today in a Bloomberg Radio interview. Still, he said, prices "can’t keep declining at this rate forever." The home price index was projected to decline 18.6 percent from a year earlier, according to the median forecast of 29 economists in a Bloomberg News survey, after an originally reported drop of 18.5 percent in December. Estimates ranged from declines of 17.2 percent to 19 percent. From a month earlier, home prices fell 2.8 percent in January, after a 2.6 percent drop in December, the report showed.

The figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month. All 20 cities in the index showed a year-over-year price decrease in January, led by a 35 percent drop in Phoenix and 32.5 percent drop in Las Vegas. All of the 20 areas covered also showed declining home prices from the prior month. "There are very few bright spots that one can see in the data," David Blitzer, chairman of the index committee at S&P, said in a statement. "Most of the nation appears to remain on a downward path."

Consumer confidence this month probably held near a record low as Americans fretted about paying their mortgages and keeping their jobs, economists forecast the Conference Board’s sentiment index will show today at 10 a.m. Foreclosures surged 29.9 percent in February from a year earlier after rising 17.8 percent in January, according to RealtyTrac Inc. An estimated one in every 440 homes is in some stage of foreclosure. Still, recent reports showed builders broke ground on 22 percent more homes in February than the prior month -- when starts plunged to a record low -- and that sales of new and previously owned houses increased, signaling the industry’s decline may be closer to reaching a bottom.

Lower prices and borrowing costs are attracting some buyers. The National Association of Realtors’ affordability index increased to a record in February. Mortgage rates for 30- year fixed loans fell to a record low in the week ended March 20, according to the Mortgage Bankers Association. KB Home, a Los Angeles-based homebuilder that caters to first-time buyers, last week reported a narrower loss in the quarter ended Feb. 28, and said net new-home orders rose 26 percent from a year earlier, the first gain since the fourth quarter of 2005. Also, while job losses are hurting Americans’ confidence, retail sales fell less than forecast in February and consumer spending had a second straight monthly gain. Economists predict the recession may ease in the second half of this year after the economy shrank 6.3 percent last quarter, the most since 1982.

Federal Reserve officials last week voiced confidence the economy will show signs of recovery by year end, responding to unprecedented monetary stimulus and the Obama administration’s $787 billion fiscal package. "Resumption of growth should not be too far off," Minneapolis Fed President Gary Stern said in a speech on March 26. He added, "Once under way, the pace of expansion is likely to be subdued for some time." Shiller, also a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

In the 1980s, London launched a radical set of market reforms known as Big Bang, turning the city into ground zero of a revolution that begat today's buckling global financial system. Now, as leaders of the world's 20 largest economies gather here to fix that system, some Big Bang architects are questioning the ideal of unfettered capitalism on which it was built. In retrospect, they say, the movement unleashed unanticipated forces such as global banks whose influence extends beyond the reach of any one regulator. Those forces may be difficult for the G-20 -- or anyone -- to rein in.

Few events embody the free-market thinking that shaped modern finance better than Big Bang. Under former Prime Minister Margaret Thatcher, a small group of officials, including Treasury chief Nigel Lawson and Secretary of State for Trade and Industry Cecil Parkinson, scrapped decades-old rules at the stock exchange and other institutions that they feared could leave London trailing behind rapidly globalizing markets. The reforms helped trigger an economic boom and boosted the status of London's banking district, known as the City, as one of the world's financial hubs -- and as a testing ground for some innovations that wound up at the center of the current crisis.

Looking back two decades later, Messrs. Lawson and Parkinson say at least one thing went wrong: Banks were allowed to grow too big for anyone, including their own managers, to oversee. "The notion that banks would get as big and as bloated as they did get -- that was totally unexpected," says Mr. Lawson, who like Mr. Parkinson is now a member of the House of Lords, the upper house of the U.K. Parliament. As a result, they take a dim view of G-20 leaders' efforts to expand the global regulatory system to match the size and complexity of the financial system. That idea "is dream-world stuff," Mr. Parkinson says. "They've become so big and so powerful that people almost can't afford to question them."

Over the past few decades, banking conglomerates have delved into a range of businesses, including buying and selling complex derivatives contracts as well as putting their own money on the line in bets on financial markets. In the process, they have become so large -- U.K. bank assets amount to £7.9 trillion ($11.31 trillion) -- that governments have little choice but to bail them out when they get into trouble. The solution, Messrs. Lawson and Parkinson say, is to break banks into the separate businesses they used to be. Mr. Lawson recommends introducing a version of the U.S. Depression-era Glass-Steagall Act. The legislation created a wall between commercial banks, which take deposits and make loans, and securities firms, which take bigger risks with their money. By making sure commercial banks don't get too entangled with securities firms, the logic goes, regulators could keep troubles at the latter from infecting the former.

To be sure, restoring a separation among different businesses would be a daunting task, given the deep and complex connections among types of financial institutions -- as the market turmoil following the demise of securities firm Lehman Brothers Holdings Inc. painfully demonstrated. One contemporary of Messrs. Lawson and Parkinson, former London Stock Exchange Chairman Sir Nicholas Goodison, doubts that turning back the clock with something like Glass-Steagall is possible. "My lesson from Big Bang is that if you try to build artificial barriers, they'll get swept away," says Mr. Goodison, echoing a concern of many economists and policy makers.

Big Bang began with a seemingly small move: abolishing fixed commissions at the London Stock Exchange, which at the time was an exclusive association of small financial houses that dominated the U.K. trade in stocks and bonds. The competition unleashed by the move, which went into force in 1986, broke down a barrier that had helped keep the system stable: The separation of brokerage firms, which executed clients' trades, from so-called jobbers, or securities firms that risked their own money by taking positions in stocks and bonds. In addition to ensuring that brokers weren't betting against their clients, the separation prevented firms from getting big enough to be a systemic threat. In 1983, for example, the largest jobbers, Akroyd & Smithers, had assets of only £40 million, compared with the $1.25 billion of Merrill Lynch in New York, according to financial historian Ranald Michie.

Once the fixed commissions were gone, falling profit margins pushed the brokers and jobbers had to expand to stay profitable. That pushed them into mergers with big global banks, opening the way for U.S. banks such as Citicorp (now Citigroup Inc.) and U.K. banks such as Barclays Bank PLC (now Barclays PLC) to get into the risky business of securities dealing -- something that was still banned in the U.S. under Glass-Steagall, which was repealed only in 1999. Attracted by the freedom and later by the U.K.'s famously light-touch regulation, global banks turned the City into a laboratory for new financial products, including the credit derivatives that ultimately brought down insurer American International Group Inc. and the off-balance-sheet funds, known as structured investment vehicles, that helped kick off today's crisis when they malfunctioned in late 2007.

To bring the unwieldy system under control, the U.K.'s markets watchdog, the Financial Services Authority, is now cracking down. Among its plans: Expand supervision to cover the entire universe of banking, including hedge funds and structured investment vehicles. The Big Bang veterans, for their part, are skeptical about the chances of success. "What has never been proven to me is that regulatory bodies can actually outwit really determined crooks," says Mr. Parkinson. "All the evidence suggests the opposite."

This week's G20 summit will demonstrate how fast the balance of power is shifting from the old U.S.-led economic order towards emerging market nations, although it is way too early for a productive debate about a new world currency. Beijing is pushing for more power in key institutions such as International Monetary Fund and, more dramatically, China and Russia are both saying it is now time to consider shifting away from a dollar-dominated world. While the immediacy of the worst economic downturn since the Great Depression may leave little room for conclusive discussion at the summit, Beijing and Russia have already opened the debate about a more fundamental shift in the global economic order.

In one sense, their timing is right, because the entire world is hit by a crisis that snowballed out of the United States. In another, it is awful because nobody at the G20 summit really wants to fray financial market nerves any further. "The rich countries are going to have to move over and make room," says Dominique Strauss-Kahn, head of the Washington-based IMF. "It's not a battle that's won in two hours but it can start at this G20." Moscow has called outright for the G20 to start looking for alternatives to the dollar as the world's main reserve currency, and Russian President Dmitry Medvedev renewed that call over the weekend. "It is quite obvious that the existing currency system has not coped with the existing challenges," he told the BBC in an interview, relayed by the Kremlin website. www.kremlin.ru

China, key because it is owner of the world's biggest stock of foreign exchange reserves, went public with much the same argument in a speech delivered last week by central bank chief Zhou Xiaochuan. Does all that mean the idea will start to gain traction any time soon? Not at the London summit in any case, it seems. According to an aide of French President Nicolas Sarkozy, it will simply not be discussed by leaders, if only because the summit aim is above all to reassure scared financial markets and voters, not dent the dollar. "It might be a good thing in the longer term but right now it is perhaps best the dollar doesn't drop too much," said the official. As for the merits of a new reserve currency though, there is no shortage of economists who think it could make sense.

A UN panel published a report last week which said that an alternative reserve currency system based on the SDR, a unit of account used by the IMF, could help contribute to global financial stability and strength. Indeed, Nobel Prize-winning economist Joseph Stiglitz, who headed the panel, believes such a replacement currency system could feasibly start to be phased in within as little as 12 months, even if he acknowledged that was unlikely. Stephen Green, a China economist at Standard Chartered bank, says Zhou's speech was a milestone. "Whether or not the reserve currency question progresses beyond an intellectual debate, it's clear that China has decided the time is ripe to become proactive in the debate," Green said in an investment research note to his bank's clients.

The problem is that despite reaching out to the emerging economic powers, the West is also in essence saying power imposes obligations and that means 'pay up if you want to play up', whether it is China, Russia, Brazil, or Saudi Arabia. British prime minister and summit host Gordon Brown said as much during a G20 promotion pit-stop in New York recently. Countries that had built up massive currency reserves, such as China, could afford to put them to better use, he said. "We've got 7 trillion (dollars) (5 trillion pounds) of reserves around the world. Probably for the sake of financial stability you need maybe only half of these reserves. The rest can actually be far more effective in being used to get growth into your economies." "If we could find an insurance policy which guaranteed for these countries action in the event of their currency being in difficulty, that in my view would satisfy half the problem that is being raised by China and Russia," he said.

A lack of consensus about the cause of the financial crisis will make reform of the global economic system a long process, Chinese central bank governor Zhou Xiaochuan was quoted as saying on Tuesday. Zhou also reiterated China's position that it stands ready to support the International Monetary Fund in raising new money to tackle the global financial crisis, Xinhua news agency reported. He said that China would actively participate in reform of the international financial system but also played down expectations of any breakthrough. "Because countries have yet to come to agreement about the origins of the financial crisis, the process of reforming the global financial system will be complex and quite long," he was cited as saying by Xinhua.

Affixing blame for the financial turmoil became an issue of contention between China and the United States after former Treasury Secretary Henry Paulson said that China's high savings rate had helped sow the seeds of the crisis. The People's Bank of China pulled no punches in a report earlier this month, saying that excessive consumption and low savings in the United States were the root of the problems. In the article on Tuesday, Zhou sounded a more conciliatory note, pointing to three broader causes of the crisis: U.S. regulatory loopholes; lack of warning by international financial organisations; and too many credit rating agencies alongside too much corporate risk taking.

China has flexed its growing economic and political muscle before the G20 summit of world leaders later this week in London, most notably in Zhou's call last week for a new super-sovereign reserve currency to replace the dollar. In the Xinhua article on Tuesday, Zhou made no mention of his proposal that the IMF's Special Drawing Right should serve as a reserve currency. He said that Beijing was working closely with the IMF to ensure that its funds be disbursed effectively to alleviate the financial crisis. China has called on the IMF to issue bonds as a way of raising more money, saying that it was likely to subscribe to such a bond issue.

Developed Nations Watch Warily as Beijing, With Vast Foreign-Exchange Reserves, Upgrades Role in Global Affairs

China is showing more willingness to aid organizations like the International Monetary Fund, reflecting its desire for a stronger voice in global economic affairs. But as leading economies prepare for a summit, Beijing's push for clout to match its financial resources is creating friction with rich countries. The European Union's commissioner for external relations, Benita Ferrero-Waldner, said Monday during a visit to Beijing that the G-20 summit is "not the right moment" to negotiate IMF votes, which are set to be updated by January 2011. She also called China's proposals for dealing with the global financial crisis "imprecise." Over the past week, Beijing officials have said China, with nearly $2 trillion in foreign-exchange reserves, is willing to add funding for the IMF to increase the lender's ability to help countries hurt by the crisis. An agreement on putting more money into the IMF could be one of the most concrete achievements of this week's summit of the Group of 20, a gathering of the world's major economies.

The IMF is aiming to boost its war chest to at least $500 billion from $250 billion, and is already close to that goal. Japan has lent $100 billion, and the EU has committed €75 billion ($100 billion). Countries such as China and Saudi Arabia are being asked to help come up with tens of billions of dollars more to make up the difference. The U.S. is looking to chip in nearly $100 billion, but wants it as part of a separate kitty the IMF can tap in emergencies. Beijing wants something in return for new funding. "China sees this as a good opportunity to increase its influence," said Jun Ma, China economist for Deutsche Bank. China doesn't want to miss out on the chance to help rewrite the rules that will govern global finance for coming decades. "China is more actively contributing their thoughts. This is very different from 10 years ago, when China was much quieter and more low profile," said Mr. Ma, who previously worked for both the IMF and the Chinese government.

China wants more IMF voting rights in exchange for any new funding, which most countries agree makes sense given its weight in the global economy. Chinese officials have also said the country could contribute in ways that don't require an immediate overhaul of the organization, for instance by buying bonds issued by the IMF. An increase in China's IMF voting power would likely come at the expense of smaller European nations. A stronger Chinese role at the IMF could also mean the institution might start going along less frequently with the U.S. and Europe. Because the current crisis originated in developed countries, China says the IMF should be able to more openly criticize their policies. "Under the current situation, we feel that the IMF particularly needs to strengthen its surveillance of the economic and financial policies of the major reserve-currency-issuing nations," deputy central bank governor Hu Xiaolian said last week.

China seems to want to strengthen and redirect the IMF, not undermine it. Central bank governor Zhou Xiaochuan's proposal last week for a new global reserve currency would give the IMF even greater clout. Mr. Zhou was a member of an outside panel of current and former officials who last week called for a "re-energized" IMF, concluding that "the world needs a multilateral institution at the center of the world economy to help anchor global financial stability." The interest in bolstering the IMF is perhaps surprising given the sometimes rocky relationship China has had with the fund. The organization's reputation within Asia is poor, as many governments say the IMF gave bad advice during the regional financial crisis of 1997-98. Though China hasn't had to borrow from the IMF, many within China see the IMF as a tool the U.S. has used to criticize Beijing's currency and economic policies.

China has stepped up its participation in other international agencies. In January, China formally joined the Inter-American Development Bank, contributing $350 million to fund the agency's lending in Latin America and the Caribbean. Incorporating China into institutions that have long been dominated by the U.S., Europe and Japan is bound to alter what has been "the fairly predictable context" for decisions on international economic policy, said Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development. "We have been producing consensus among ourselves in a generally like-minded community of countries which are very used to working with each other and talking to each other," he said in an interview in Beijing. But China's positions have gained more credibility internationally because of its aggressive response to the economic downturn: Its stimulus plan is one of the biggest in the world.

Argentine officials are hopeful that a new currency swap deal with China will bolster confidence in the peso while giving the monetary authority greater power to defend the currency. "This should boost confidence," said an Argentine Central Bank official who asked for anonymity. "Even if none of this money is ever used, its mere existence should serve to boost confidence in the currency." The two nations agreed to a three-year currency swap totaling 70 billion yuan, ($10 billion). China's state news agency, Xinhua, reported earlier Monday that Argentina could use the deal to pay for Chinese imports in yuan. But the Central Bank official said the deal's main goal is to restore confidence in the Argentine government's ability to manage the value of the peso.

"In our case, the ability to access a significant amount of yuan, in exchange for pesos, is equivalent in practice to being able to restore our financial position if circumstances warrant it," the official said. China has done similar swaps with other countries but this is its first deal with a Latin American nation. Win Thin, a currency strategist at Brown Brothers Harriman & Co., said the deal could give Argentina a "short-term shot of confidence" while enhancing China's influence in the region. Still, Thin said Argentina's broader macroeconomic problems may limit the swap's effectiveness. "Argentina has pretty bad fundamentals," he said. "Given commodities price drops and the (government's) policies, I don't think this will really do that much to shore up the peso. But in the short term it looks good, even though it seems out of the blue."

China is Argentina's No. 2 trade partner. The Asian giant imports about two-thirds of Argentina's top export, soybeans. China also has voiced increasing interest in other commodities, not just in Argentina but around the region. The peso has been weakening slowly but consistently since mid-2008, when a major farm strike here spooked investors and led many Argentines to trade in their pesos for dollars. But the peso's decline has picked up speed in recent weeks amid a scarcity of dollars in the local exchange market. That lack of dollars has been aggravated recently as farmers have refused to export grains. To prevent the currency from weakening abruptly, the Central Bank has placed tight controls on banks and forced traders to operate within certain ranges.

Government inspectors, including tax officials, have repeatedly visited banks and exchange houses to pressure them into following the Central Bank's trading guidelines. The Central Bank carefully monitors trades and injects dollars into the market on a daily basis to prevent the peso from losing value quickly. But in recent weeks, as demand for dollars has risen alongside increased political noise, the bank used more of its reserves to meet demand. This has led to increased speculation that the government, which is hesitant to use reserves to defend the peso, will let peso depreciate rapidly after a hastily arranged congressional election scheduled for June 28.

But Central Bank officials on Monday downplayed this idea, saying the bank's currency management strategy will remain in place after the election. "The bank has a lot of confidence that its management strategy is the best policy available," an official said. "The bank's policy isn't tied to the electoral calendar. It's going to be the same after the election as it was before the election." The peso was unchanged Monday.

Asian policymakers are preoccupied with China's "war of nerves" over the U.S. dollar's global status rather than the impact of the Fed's debt buying on their vast dollar-linked savings, officials told Reuters. The Federal Reserve's decision earlier this month to buy more than $1 trillion in long-term U.S. debt to push down rates drove the dollar sharply lower, though Asian officials said the actions were unsurprising given how much private lending has slowed. Much more unanticipated was China's unusually aggressive push last week to replace the U.S. dollar as the top central bank reserve currency, they said. Officials with direct knowledge of reserve management issues in Japan, India and South Korea, which together hold some $1.5 trillion in currency reserves, were skeptical that such an overhaul of the global monetary system could happen soon. They acknowledge, however, that the sheer size of their dollar holdings made their substantial reduction problematic.

In contrast, Malaysia and Indonesia, which have smaller reserve stockpiles and hold a combined $145 billion, were already gearing for a change in the reserve currency regime. China, with the world's largest reserves at $2 trillion -- the bulk of it widely believed to be in U.S. Treasuries -- demonstrated last week that it is confident about using economic might to protect its interests, Asian officials said. "China is engaging in a war of nerves with the U.S. as it is trying to see what move the new U.S. administration makes, and the recent comments have been made in that context," said a Japanese government official. "But it won't make a drastic shift, given its massive holdings of U.S. Treasuries," the official, who was not authorized to speak to the media, said. It will try, however, to protect the value of its dollar holdings by reminding the United States about the need to preserve fiscal health, the official said.

Japan has $1 trillion in foreign exchange reserves, the world's second-largest stockpile. Nearly two thirds of the total were invested in U.S. Treasuries, according to January data, and Tokyo has said it will continue to invest the majority of its reserves in U.S. government debt. A senior financial official in South Korea, which has $201 billion in foreign reserves, sympathized with Beijing's concerns about the dollar's value. "There has long been a lot of talk about the persistent weakness of the U.S. dollar and it has become time for someone to stand up and raise their voice. China did." But just like Japan, South Korea does not foresee a move away from the dollar any time soon, given its dominance in trade.

Skepticism voiced by some of the biggest holders of U.S. dollars in Asia, where more than half of the world's $6.9 trillion in reserves are housed, may make Beijing's proposals a hard sell at the G20 meeting in London on Thursday. Still, China may seek something in return for continued Treasury buying as the Fed's increased use of quantitative easing -- effectively printing money to boost the economy -- ushers in a weak dollar era, said Zhong Wei, professor with Beijing Normal University. The world's third-largest economy may ask Washington to lower trade and investment barriers or for the U.S. Treasury to issue callable securities, said Zhong, who is editor of China Foreign Exchange, a journal of China's State Administration of Foreign Exchange. "China has been buying U.S. Treasuries without asking any questions. Now China is going to put its own conditions."

Last week, Zhou Xiaochuan, governor of the People's Bank of China, in a series of papers intended for an international audience proposed adopting Special Drawing Rights issued by the International Monetary Fund as a dominant reserve currency. Though he avoided mentioning the U.S. dollar, the proposal implicitly sought to end its dominance as trade and reserve currency, which Zhou said has contributed to global financial instability. Beijing's increasingly bold overtures on the world stage reflect China's frustration of wanting to diversify its dollar-based assets but finding few attractive alternatives, said Frank Gong, chief China economist with JPMorgan.

The idea of weaning the world off its dollar dependence appealed to emerging economies around the world and central banks in Indonesia and Malaysia said they liked China's proposals. "A global reserve currency has been discussed in forums and this is a viable proposal that should be considered," said Zeti Akhtar Aziz, governor of Malaysia's central bank, which has $90 billion in foreign reserves. Indonesia and China last week agreed on a $14.6 billion currency swap, enabling Indonesia to buy Chinese goods and settle payments directly in yuan, rather than seek U.S. dollars first. The swap line was a "small step" in anticipation of a diminishing role of the U.S. dollar, said Boediono, Indonesia's central bank governor.

The International Monetary Fund was widely dismissed as irrelevant just six months ago, an economic emergency room with nearly no patients. Now, with the global crisis battering one nation after another, the ER is overflowing. The IMF has lent about $50 billion to needy countries to shore up their finances, with more countries lining up for help. At the same time, it's pressing rich ones to spur global growth through greater spending. The IMF is about to gain more power. Thursday's summit of leaders of the Group of 20 industrialized and developing nations is poised to elevate the IMF by promising to pump more than $250 billion into the fund, and asking it to issue "early warnings" about countries in peril.

"Everyone sees the need for a rejuvenated IMF," says Egyptian Finance Minister Youssef Boutros-Ghali, who heads a policy-making group that oversees the IMF. But questions are swirling about just how effective the new-look IMF will be in fighting the crisis. Where once it demanded that borrowers dramatically remake their economies, the IMF is now taking a softer stance, and attaching few restrictions to its massive loans. "In most cases, the question for the IMF now isn't how to fundamentally change policies" of borrowing nations, says Marek Belka, a former Polish prime minister who is now the IMF's top official for Europe. "It's to help [weakened] countries get to the other side of the river."

There isn't a lot of evidence yet that the IMF loans are helping broadly in the short-term. Andrew Howell, a Citigroup emerging-market analyst, says that currencies in Ukraine and Belarus are plunging despite IMF loans, deepening the recessions there, although those in Serbia and Hungary seem to have stabilized. Also, big developing countries such as Brazil and South Korea have so far passed on a new IMF credit line, worried about both the stigma of borrowing and possible domestic backlashes. In the long-term, the fund's unwillingness to press for fundamental reform may mean that borrowers miss opportunities to improve competitiveness, which could limit their growth after the global economy recovers. "The IMF retreat from conditions on structural changes for economies in crisis needs to be reversed," writes Susan Schadler, a former IMF official for Europe, in a report to the G-20 by the Atlantic Council and Chatham House think tanks.

The 185-member IMF was last at center of the action a decade ago when it put together multibillion-dollar packages to stem a financial crisis that started in Asia in 1997 and spread to Russia and Brazil. The fund insisted on tough changes in domestic economic policy as the price for loans, provoking deep resentment, and in some cases, bloody riots. Still, the nations under IMF care rebounded fairly quickly. The IMF prescription -- cut spending, devalue currencies, fix financial institutions, open markets -- helped many countries export more to the U.S. and Europe. That approach won't work today because rich nations are cutting imports. Instead, the IMF is campaigning for wealthier countries to expand spending while keeping weaker countries afloat until the recovery takes hold. It's also asking China to boost spending and to make a big contribution to the IMF's loan kitty. In exchange, the IMF is searching for way to end a dispute over China's exchange-rate policy and give it greater voting rights at the fund.

The remaking of the IMF, which occurred largely out of public view, began during the global expansion of the middle of this decade when Brazil, Argentina, Russia and others repaid IMF loans early and few nations sought new ones. IMF economists began to prepare for what they viewed as an inevitable next crisis. The revamp shifted into high gear with the arrival of the new IMF managing director, Dominique Strauss-Kahn, in late 2007. The 59-year-old former French finance minister took over an organization that was on its way to big losses because few countries were borrowing, and which was under orders from member-nations to make cutbacks. Mr. Strauss-Kahn used a spring 2008 town-hall meeting, held in an IMF reception hall decorated with a huge Persian rug, to encourage managers to take buyouts, say several IMF officials. It was the first significant round of layoffs since the IMF was founded in 1945.

At the January 2008 gathering of financial elites at Davos, Switzerland, Mr. Strauss-Kahn urged nations to spend more to fight a likely recession. That was such a departure from IMF orthodoxy that fellow panelist Lawrence Summers, now President Barack Obama's economic adviser, called it "a mildly historic event." But it spooked long-time IMF staffers, who argued with Mr. Strauss-Kahn not to press the idea further, warning it would be controversial in deficit-averse Germany and elsewhere. He did the opposite, making the recommendation more specific as global prospects darkened. Mr. Strauss-Kahn's efforts nearly got derailed after an affair he had with a female staffer became public. But a review panel cleared him in October, and the downturn pushed the affair into the background. By November, he was urging countries that could afford it to boost emergency spending by at least 2% of gross domestic produce -- more than $1 trillion globally.

IMF economists acknowledge that the 2% number was as much a political call as an economic one: 1% seemed too little, while 3% could spook markets. "How do you convince governments to do things?" asked a senior IMF official. "You want to scare them, but not too much." At the Obama White House, the IMF number reinforced the preexisting conviction to do a large-scale stimulus, said a senior administration official. Germany, France and others resisted. Overall, the G-20 nations approved fiscal packages worth 1.8% of their combined GDP this year, the IMF estimates. The IMF's efforts to aid poorer nations have also required political calculations, particularly convincing countries that had sworn off IMF aid that the fund had changed. Pakistan, whose prime minister declared the country had smashed its "begging bowl" when it paid off the IMF in 2004, decided it needed IMF help in late 2008 after foreign capital flows and exports dried up. The move was so unpopular that Mohsin Khan, then the IMF's top Asian official, says he met with a group of generals to get their backing.

Unlike past loan discussions, the IMF didn't press Pakistan to revamp its tax system, or make other fundamental changes. When the IMF wanted the central bank to raise its discount rate, then 13%, to battle inflation that at the time was around 25%, Mr. Strauss-Kahn refereed a debate at headquarters in late October. IMF hardliners insisted on a 10-percentage point rise, says Mr. Khan, though others say now that wasn't a serious option. The fund settled on 3.5 percentage points, which Mr. Khan said was enough to signal markets that inflation would be addressed. The IMF loaned Pakistan $7.6 billion, though the country never raised the discount rate more than two percentage points. Inflation has dropped, but only slightly, to 20%.

In Eastern Europe, the IMF generally limited its requirements for loans to cuts in spending. In Serbia, IMF economists criticized the country for failing to privatize state industries and neglecting exports, but they didn't insist on a privatization program, as they had in Asia and Latin America. Serbia is in line to receive $4 billion in loans. When Latvia requested loans, IMF economists considered stipulating that the country devalue its currency, the lats, and end its peg to the euro. That would have made imports less affordable, but could have made the country's exporters more competitive. But after the European Union and European Central Bank pressed the IMF to keep the currency peg to make it easier for Latvia to pay debts to Western European banks, the IMF relented, say European and IMF officials. Instead of devaluation, the IMF settled for a steep cut in government salaries, which the Latvian government backed anyway.

Critics say the IMF has overdone its charm offensive and is wasting a chance to press for needed changes. Peter Holtzer, a Hungarian pension-reform expert, said he was disappointed that the IMF hadn't demanded that the Hungarian government revamp its too-generous pension system and inequitable tax system when it loaned the country $15.7 billion last October. "It would have been easy for the government to use external help, point to the IMF and say, 'Sorry, the IMF is forcing us to do it,'" says Mr. Holtzer. IMF officials say they no longer want to play the fall guy. Indeed, for countries like Brazil, South Korea and Mexico, whose policies the IMF judges to be sound, but which are in danger of falling into recession, the fund recently began to offer condition-free credit lines.

It's far from clear the new credit line will be enough to induce Asian or Latin American nations to borrow. An earlier version of the credit facility didn't attract a single borrower and no country has signed up for the new one either. To make the new credit line more palatable Mr. Strauss-Kahn considered removing the name IMF from the loan. When South Korea said no to the IMF credit line, Lee Hyoung-ryoul, a Korean Finance Ministry official explained: "South Koreans tremble and financial markets turn sensitive whenever they hear the word 'IMF.'"

IMF officials are also wooing China, whose relations with the fund have been icy. Since 2007, China has blocked IMF reviews of its economy because it knows its exchange-rate policy is bound to come up. To avoid singling out China in meetings about currency, Mr. Strauss-Kahn decided to invite another country to the table. He looked at tiny countries which the IMF also believed to have over- or undervalued currencies. One candidate, the Maldives, was rejected, says Eswar Prasad, a former IMF official who oversaw China, because it seemed "too ludicrous." Instead, the IMF chose Latvia, with a population of two million. But the "ad-hoc consultation" with both countries was called off when Latvia's economy tanked in late 2008.

China recently said it would loan the IMF money, though it hasn't said how much, if its voting rights are increased at the fund, a change the IMF favors and which the G-20 is likely to order. That will require another round of tough negotiations to get smaller European nations, whose voting rights at the IMF are in outsized proportion to their share of the global economy, to agree to a reduced vote. As for the currency question, IMF officials say the global recession might make a difference. If China shifts its policies to promote domestic industries rather than exporters, Beijing would have good reason to let the renminbi appreciate, argues IMF chief economist Olivier Blanchard. "But it is better to avoid labeling" countries for misbehavior, he says. "That's proven incredibly counterproductive."

The Federal Reserve has taken the primary role in determining how much new capital the nation’s biggest banks need to weather the economic slump, people familiar with the matter said. Putting the Fed in charge may help ease concern that different assessments by different agencies would lead to some firms being judged less strictly than others. Treasury Secretary Timothy Geithner has said he anticipates the results, due at the end of April, will result in "large" capital needs for some companies, offering investors a way of differentiating between weaker and stronger lenders. Fed examiners are deployed alongside counterparts from three other agencies that oversee parts of the 19 banks that are involved in the so-called stress tests.

"You could argue this is a systemic risk issue and it is good to have another regulator step in and assert a uniform set of standards," said Kevin Fitzsimmons, analyst at Sandler O’Neill & Partners LP in New York, and a former bank examiner at the Federal Reserve Bank of Boston. "The Fed has its hands on every institution that is a holding company." All 19 of the firms under scrutiny, from American Express Co. and GMAC LLC to SunTrust Banks Inc. and Citigroup Inc., are bank holding companies, giving the Fed an overarching role. Geithner unveiled the stress tests on Feb. 10. They were billed as a comprehensive set of standards for the financial system’s most important banks, regardless of their regulator. He stressed "consistency" and "realism" in congressional hearings that week.

While U.S. regulators don’t intend to publish the details of their stress tests, the results will effectively become known once it is determined how much capital each bank is required to raise. Under the terms of the February plan, firms will be given six months to raise the funds either from private investors or the government. The tests are designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets, which have hampered lending to consumers and businesses. Officials aim to have the first purchases of the toxic assets by private investors financed by the government within weeks of the conclusion of the capital-need assessments. "Banks are going to have an incentive" to sell their devalued assets because they want to "go raise private capital from the markets," Geithner said in an interview with NBC’s "Meet the Press" March 29.

Still, it’s unclear whether most of the big banks will be willing to sell loans and securities at prices that may be below the current valuations on their balance sheets. Bank of America Corp. Chief Executive Officer Kenneth Lewis said in a Bloomberg Television interview March 27 that the pricing of the assets is "going to be the key" determinant of his bank’s participation. Citigroup CEO Vikram Pandit told reporters after a group of bank chief executives met with President Barack Obama March 27 that "we want to do whatever it takes" and work with officials "to promote a recovery." All of the 19 banks are bank or financial holding companies, according to the Federal Deposit Insurance Corp.’s Web site. Some of them have units overseen by the FDIC, Office of the Comptroller of the Currency and Office of Thrift Supervision. OCC spokesman Kevin Mukri referred to prior Treasury statements noting that federal supervisors would coordinate in the tests.

Geithner removed OTS Acting Director Scott Polakoff last week amid concern about how the agency handled accounting for capital raised by banks it oversaw. John Bowman, the deputy director and chief counsel, was named acting director, becoming the third OTS chief so far this year. The OTS failed to uncover "unsafe and unsound" practices at Pasadena, California-based IndyMac Bancorp Inc., an audit concluded last month. The Treasury’s inspector general disclosed on Jan. 30 that the OTS permitted IndyMac and four other unidentified lenders to improperly backdate a capital infusion, which helped them avoid regulatory restrictions. "If these stress tests are going to be meaningful, as they should be, then banks are going to require more capital," Patrick Cave, a former Treasury official who is now chief executive officer of Cypress Group LLC, said in an interview on Bloomberg Television. He added that the administration is right to pursue a "tough love" approach to any further assistance.

Regulators’ assessments are based on two scenarios for the economy. The "baseline" forecast projected a 2 percent economic contraction and an 8.4 percent jobless rate in 2009, followed by 2.1 percent growth and 8.8 percent unemployment in 2010. The "alternative more adverse" scenario had a 3.3 percent contraction in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth and 10.3 percent jobless in 2010. The Treasury estimates it has about $135 billion left in the $700 billion financial-rescue fund enacted in October. Banks who already received government funding also could get a capital boost if the Treasury agrees to convert its preferred shares into common equity. Obama administration officials haven’t said when they may need more rescue money and ask for congressional authorization.

After ousting General Motors' chief executive, President Obama warned Monday that bankruptcy may be unavoidable for two American automotive giants. The administration's display of authority sent U.S. stocks tumbling and raised questions about whether the government would take similar steps against top executives at U.S. banks that are also receiving government bailout funds. The administration told GM and Chrysler they had failed to come up with restructuring plans that justify the billions of dollars in additional taxpayer funds they are requesting. GM was ordered to devise a new plan, while Chrysler was instructed to reach a deal with Fiat in which the Italian carmaker would take a stake in Chrysler.

Obama said that if they fail to achieve those goals, GM and Chrysler might need to use bankruptcy as a "mechanism to help them restructure quickly and emerge stronger." Such a move would wipe out the mountain of debt weighing down the companies. The administration's decision to oust G. Richard Wagoner Jr. sharply ratchets up its control over companies receiving government assistance in the face of criticism about a lack of accountability over billions of taxpayer dollars. The government demanded Wagoner's departure even though it does not own a stake in the automaker. The three companies the government does control -- American International Group, Freddie Mac and Fannie Mae -- were required to replace their chief executives. The government has not, however, required any banks in which it took smaller stakes to replace its top executives. It did pressure Citigroup to replace several members of its board of directors.

Now the president's aggressive move against GM has left some banking executives wondering whether they are next in line. "Is there a heightened risk for the Obama administration" to remove a banking executive? asked Scott Talbott, chief lobbyist for Financial Services Roundtable. "I think you'd have to conclude that the answer is yes." Banking executives and analysts said Monday that if the administration were to replace a bank chief executive, it would likely be someone from an institution that has received large amounts of federal money. The government is currently stress-testing the nation's 20 largest banks and "maybe three fail the test," said an executive at a large bank receiving government funds. Obama "could remove the heads of those banks," the executive said.

But the executive, who spoke on condition of anonymity because of the sensitivity of the matter, said he was not nearly as concerned about the ousting of GM's chief executive Wagoner as they were about legislation passed by the House of Representatives this month to tax Wall Street bonuses, including those of non-executives, by 90 percent. "He had to do something dramatic; he had plenty of cause on this one," the executive said, adding that the outlook for GM was extremely grim. Stocks plunged as investors worried that bankruptcy would undermine consumer confidence while further cutting production and raising unemployment. The Dow Jones industrial average fell 3.3 percent to 7522.02. All of its 30 blue-chip stocks declined, with General Motors shedding a quarter of its value. Chrysler, which is owned by private-equity firm Cerberus Capital Management, is not publicly traded. The Standard & Poor's 500-stock index, a broader measure, slid 3.5 percent to 787.53. The Nasdaq Stock Market declined 2.8 percent to 1501.80.

Bert Ely, a banking industry analyst in Alexandria, said the administration will likely exercise its powers in only a limited number of a cases, if at all. Even banks that have received repeated injections of government funds, analysts said, appear to be making some progress, and more importantly, are showing more willingness to respond to new economic realities than the automakers were. "There is a key difference between GM and Chrysler and the large banks going forward," Ely said. "Those two companies have major questions about their [future] profitability. Whereas the large banks by and large have good business models going forward. The problem is that they've got to pay for the sins of the past."

Two banking executives who may be vulnerable, Ely and others said, are Citigroup's Vikram Pandit and Bank of America's Ken Lewis. Pandit, who took the helm 15 months ago and largely inherited the bank's problems, has stirred questions about whether he is moving fast enough to sell off assets that no longer fit Citigroup's business plan. Lewis has been criticized for his decision to acquire Countrywide Financial and Merrill Lynch. Citigroup, which recently said it operated at a profit during the first two months of the year, declined to comment. A Bank of America spokesman dismissed talk that its chief executive was vulnerable. "Bank of America made a $4 billion profit in 2008 and has been profitable in every quarter but one since 1991," said spokesman Scott Silvestri. "We do not see the parallel with the U.S. auto industry."

At a news briefing Monday, White House spokesman Robert Gibbs faced repeated questioning about whether the Wagoner ouster meant the administration could remove any chief executive of a firm receiving federal funds if the government was not happy with his or her performance. "I think it's imperative or important to ensure that we look at these things all individually," Gibbs said. He added that it was necessary to protect taxpayer money and use it wisely to spur recovery. The administration also faced continued questioning about the perceived disparate treatment of Wall Street and Detroit, and fielded attacks from Republicans about Wagoner's removal. "This is a marked departure from the past, truly breathtaking, and should send a chill through all Americans who believe in free enterprise," Sen. Bob Corker (R-Tenn.), who sits on the Senate Banking Committee, said in a statement. "Firing Rick Wagoner is a sideshow to distract us from the fact that the administration has no progress to announce today."

However, some political strategists said the administration's efforts are likely to be well-received by the public. Democratic pollster Michael Bocian said frustration with the auto bailout was growing and that the public was blaming management. The public also places blame on banking executives but to a lesser degree, he said. The average American voter, he said, is not so concerned about government overreach as it is about accountability. Wagoner's removal "is the kind of thing that sends a signal that, if they're going to get additional funding, they're going to have to make serious changes," Bocian said.

Rogan Kersh, associate dean and professor of public service at New York University, said replacing Wagoner is not without precedent. In the 1950s, he said, President Harry Truman seized steel mills to prevent a strike, an act later overruled by the U.S. Supreme Court. In wartime and periods of economic unrest, "presidents or prime ministers of every advanced democratic country have taken actions affecting their business sector . . . that would arouse powerful criticism in ordinary times," he said in an e-mail. "This is hardly unprecedented."

General Motors says it will make car payments for some customers who lose their jobs. The auto maker's new CEO Fritz Henderson says under GM's new "Total Confidence" program, the company will make up to nine car payments of $500 each for customers who have lost their jobs through no fault of their own. Customers must qualify for state unemployment to be eligible for the program. The program starts April 1 and runs until April 30. The news comes hours after rival Ford Motor Co. said it would take over customers' payments of up $700 for a year in the event of job loss. Henderson, formerly chief operating officer of General Motors Corp., replaced Rick Wagoner who stepped down Monday at the government's request as the Detroit auto maker seeks more federal aid.

Take that Hyundai! Ford announced this morning that it will cover up to 12 months of payments if you lose your job within nine months of buying any new Ford, Lincoln or Mercury vehicle. The payments could be up to $700 a month! If you get 0% financing for 60 months that means you could buy a $42,000 car and still get the full payment taken care of. Unlike Hyundai’s Assurance Plus plan, the Ford plan will not include buying back the vehicle with no loss in equity. GM is also announcing an assurance plan this morning, which we will report on as soon as the details are available. Ford’s plan, called the Ford Advantage Plan, will run through June 1. New cars coming out before June 1 include the Ford Fusion, Fusion Hybrid and Mustang. Lincoln’s new MKZ and Mercury’s Milan are also out now. It’s unclear if the new Ford Taurus and Lincoln MKT will be on sale before this deal expires. The new Ford F-150 could actually see the biggest sales boost with such a plan.

General Motors Corp and Chrysler LLC were both put on notice by the Obama administration on Monday and markets reacted with dismay to the specter of bankruptcy for the troubled automakers that could wipe out equity and add to the huge losses of creditors. Yet some analysts say the hard line delivered by U.S. President Barack Obama's autos task force may just be the tonic needed to bring the warring GM factions -- the United Auto Workers and bondholders -- back to the bargaining table. "The bondholders are going to step up. That has just not taken place," said Sen. Carl Levin, a Michigan Democrat who was briefed by Obama on the plan late on Sunday. "(The bondholders) will hopefully see that they have a pretty stark choice."

GM, which had been looking to cut unsecured debt by about $19 billion, hit a roadblock in talks with bondholders and the union recently, with both being offered stock in a recapitalized GM in exchange for concessions. The UAW has accused the bondholders of pushing 775,000 retirees toward hardship, while GM's creditors say they were presented with an unworkable plan that would have left the company saddled with too much debt. Now both sides face the risk of deeper losses as bankruptcy looms and the market reaction was swift and harsh -- GM shares closed down more than 25 percent at $2.70 on Monday. Kip Penniman, an analyst with KDP Investment Advisors, said bondholders had leverage in the negotiations because of the Obama administration's desire to avoid deeper job cuts that could accompany a bankruptcy.

"The UAW, from a financial standpoint and a human cost standpoint, has the most to lose if GM goes into a long- duration bankruptcy," he said. Bondholders said on Monday they were still willing to exchange a substantial part of the $27 billion debt for equity if they see a viable business plan. A committee of GM debt holders, including Franklin Templeton Investments, Fidelity Investment and Loomis Sayles & Co, have been in talks with the automaker since early this year. In a sharp reversal of the company's earlier stand, GM interim Chief Executive Fritz Henderson said the automaker was now open to the kind of "surgical" bankruptcy described by officials if other options failed. Henderson took the top job on Monday after Rick Wagoner stepped aside at the request of the autos task force headed by former investment banker Steve Rattner.

Both Wagoner and the board had long campaigned against a bankruptcy filing, saying it would damage GM's sales and send it into a disastrous liquidation. But Wagoner's departure and the new line taken by his successor convinced some analysts GM could now be moving toward bankruptcy as a way to reduce debt. "To take an enterprise the size of GM through a quick bankruptcy would be unprecedented, but these are unprecedented times," said Brad Coulter, restructuring adviser at Detroit area firm, O'Keefe & Associates. "Reading between the lines, I think they are saying GM is on the path to bankruptcy on a fast track." A GM bankruptcy would put most of the pressure on the UAW, which could see its contract with the automaker dissolved in court, even after negotiating deep concessions on healthcare and entry-level wages.

"Labor has made, I think, fairly aggressive concessions, but it's going to have to go back to the table," Jared Bernstein, a member of the autos task force told Reuters Financial Television. GM now faces an end of May deadline after the U.S. government promised only to fund the automaker's operations for the next 60 days in consultation with advisers from the task force and external consultants. For its part, Chrysler has 30 days to clinch an alliance with Fiat SpA and reach its own deal with creditors. Privately held Chrysler needs to get a consortium of bank lenders, including J.P. Morgan, Goldman Sachs Group Inc and Citigroup Inc to write down the value of $6.8 billion in first-lien loans secured by the automaker's assets, including the famous Jeep brand.

Chrysler owner Cerberus Capital Management has a second- lien loan for $500 million, while former owner Daimler AG is owed $1.5 billion. Both those credits could be wiped out in either a bankruptcy or negotiated debt exchange. GM wanted as much as an additional $16 billion in loans, while Chrysler has asked for $5 billion. Analysts said GM needed to slash its debt to have a chance of riding out the brutal downturn in sales. Deutsche Bank analyst Rod Lache said GM could still be burdened with close to $74 billion of debt after a restructuring, including $18 billion in government loans. Lache has a price target of "zero" on GM shares. Bank of America Merrill Lynch analyst John Murphy said GM's total debt could approach $100 billion if it can't reach a deal with the UAW and bondholders. "This is the major reason we believe that Chapter 11 is the likely outcome for GM, despite the best efforts of the auto task force to avoid court," he said in a note for clients.

Cerberus Capital Management has received $5.5 billion in U.S. government funding for Chrysler and its financing arm and is seeking more, while maintaining what critics see as a black-box approach to disclosure. At the center of the debate is a big unknown: the identity of investors that provided Cerberus CBS.UL with funds to buy 80 percent of the struggling automaker from Daimler AG in 2007 in a $7.4 billion deal. With U.S. President Barack Obama set to deliver a decision on Chrysler's request for more aid on Monday, critics say the firm should open up in return for new assistance. Some have also said Cerberus should put more of its own money into Chrysler. Cerberus counters that it cannot name its investors because that would breach its agreements with them.

The firm also says it has a responsibility to its investors including universities, pension plans and charitable trusts that keeps it from investing more of their funds in Chrysler. "The American taxpayer should receive disclosure about the precise relationship between Cerberus and Chrysler and how it is structured," said Robert Salomon, professor at New York University's Stern School of Business. "This is a private investor that made a bad bet," he said. "They should pay for their bad bet." Senator Chuck Grassley, a Republican critical of the lack of transparency in the $700 billion bailout of U.S. banks, said Cerberus should not be exempt from disclosure and should put more money into the struggling automaker.

"It's foolhardy of Cerberus, when they have got such a stake in Chrysler, to think that they can hide behind private equity," Grassley told Reuters. "Do they believe in Chrysler or don't they believe in Chrysler? If they believe in it they ought to be helping." The Obama administration has said it will demand tough restructuring from Chrysler and rival General Motors Corp, but a person involved in the process said the U.S. autos task force had not pressed Cerberus for more disclosure. "There is a reason it's called private equity," the person said, who asked not to be named because of the confidential nature of the closed-door discussions.

Cerberus Managing Director Tim Price said criticism of the firm for not putting more money into Chrysler reflects a misunderstanding of its role in managing investor funds. "The money Cerberus has, as fiduciary, belongs to our investors," Price said. "Our investment guidelines limit the amount of capital committed to any single investment." Cerberus took Detroit by storm almost two years ago, taking control of Chrysler in a deal the firm said was intended to rescue a struggling American icon. That followed its acquisition the previous year of a 51 percent stake in GM's financing arm, GMAC, an investment that has also sagged badly. Cerberus has said it is willing to surrender its equity in Chrysler to the U.S. Treasury to use in restructuring, including using it to pay off creditors or the health care obligations owed to Chrysler's major union.

But a deal would be complicated because Cerberus is also one of Chrysler's creditors. It has proposed converting a $500 million loan into equity, a move that could give it back an ownership stake and allow it to make good on a commitment to stay with the investment for the long haul. Cerberus has also not spelled out what it proposes for ownership of Chrysler's financial arm, Chrysler Financial. It has not disclosed anything about the investors in its Institutional Partners Series Four fund, which it tapped in purchasing Chrysler and GMAC. Investors in that fund include the University of Texas, the University of California and Pennsylvania's Public School Employees' Retirement System. Those public institutions confirmed that they have stakes in the fund -- and by extension in Chrysler -- in response to questions from Reuters.

The Cerberus Series Four fund, valued at $7.5 billion in 2006, had an annual loss of 15 percent as of November 30, 2008, according to documents provided by the University of Texas. No more recent update was available. Cerberus and co-investors in its automotive investments have also taken a hit. The value of Chrysler and GMAC is now about 7 percent of the $27 billion under management at Cerberus, down from about 12 percent after write-offs. Critics say that given the aid from U.S. taxpayers, Cerberus should be subject to tougher reporting standards. "There should be better disclosure for the firms that took public funds because now we're all owners," said Nicole Tichon of U.S. PIRG, a Washington-based public interest group. Price said critics were applying a double standard.

"Why should these retirees, universities and charities, simply because they invest in Chrysler through a private investment manager, be required to take additional risks or make additional investments, when GM or Ford shareholders are not asked to do the same?" he said. Despite the pressure, Cerberus remains dedicated to turning around Chrysler because of the importance of the American auto industry, Price said. "The sense of higher calling comes from the desire to reinvigorate the U.S. auto industry, repatriate Chrysler," he said. "Now the situation has been exacerbated by this global financial crisis." But Gerald Myers, a business professor at the University of Michigan and former auto executive, said the taxpayer-backed rescue of Chrysler means it needs to be more transparent. "Public money is going in," Myers said. "If they are getting federal funds, they are quasi-public."

During last year’s election campaign, Barack Obama’s supporters stressed his promise as a leader who could restore US standing in the world. Even at home, despite the worsening economy, many of Mr Obama’s fans deemed this his most important virtue. The rest of the world agreed. Understanding that nothing happens unless America takes charge, few other governments were opposed to a renewal of US leadership. On the contrary, most longed for it. As the Group of 20 developed and emerging nations’ summit in London approaches, how is that going? About as well as could be expected.

Mr Obama’s campaign always exaggerated the difference he would make on foreign policy. His style could hardly be more different from the caricature of US supremacism projected by George W. Bush, but the underlying issues were unlikely to be any easier to deal with. So it has proved. In many areas of foreign and security policy, in contrast to the clear break he is attempting in domestic policy, Mr Obama is mostly rebranding Mr Bush’s approach. On Iraq, things are moving much as they would have done if Mr Bush were still in office. Likewise in Afghanistan, where the administration is proposing a surge not unlike the one in Iraq – overseen by the same general, under the political supervision of the same defence secretary – which Mr Obama found so unimpressive last year.

On Iran, Mr Obama has for the moment adjusted the rhetoric, but not the underlying condescension, the key demands, or the implicit "do as we say or else". "War on terror" terminology is used less often and less eagerly than it was by the Bush administration. This has not stopped the US attacking targets in Pakistan, a legally dubious enterprise to put it mildly, and one that looks a lot like waging war on terror. Lately the administration has even wanted North Korea’s leaders to believe that the US might shoot down the rocket they are preparing to launch. How George W. Bush can you get?

What about Guantánamo, which many Americans see as a scar on the country’s conscience and reputation? Mr Obama has reaffirmed his campaign promise to close the prison, and plans are afoot to do this. But the administration is in no hurry to release the people it no longer calls "enemy combatants". In a recent television interview, the president criticised some of the releases carried out by the Bush administration, mentioning that people let go have rejoined terrorist groups. To the dismay of civil-rights lawyers, the government’s legal posture towards prisoners trying to challenge their detention in court is in most ways indistinguishable from that of the previous administration.

This strategy of mostly persisting with the foreign and security policies of Mr Bush while insisting that those policies have been overthrown has not yet met organised resistance from US allies. The fact that Mr Obama is so much better liked buys him a great deal of goodwill, and the desire to suck up to him still predominates. Nonetheless, as the new president continues to seek material support for his fundamentally Bush-like security policies – more European troops in Afghanistan, a united front in dealing with Iran and other troublemakers, overseas dispersal of the G-Bay detainees – he is often going to come up empty-handed, leading to disillusionment on both sides. Friction with the allies is likely to increase.

It has already increased markedly in trade and economic policy. The administration is frustrated that Europe’s governments are failing to pull their weight on fiscal stimulus. It talks openly of Europe’s "free-riding" on the much bolder US fiscal expansion. Each side’s position is defensible. The US is right that a big temporary fiscal stimulus is needed, and that countries such as France and Germany have scope to do more. Europeans are right that their automatic fiscal stabilisers, under the influence of their higher tax rates and bigger welfare states, are more powerful than those of the US, and that comparing discretionary fiscal boosts in isolation is wrong; in most cases their prudent borrowing capacity is also less than that of the US. At the G20 these disagreements will again be papered over.

Even so, they could easily be the prelude to worsening tension over trade. True, the "Buy American" provisions in the fiscal stimulus law were partially defanged at the administration’s request, but the Obama administration has made and continues to emphasise the link between willing fiscal co-operation and commitment to open markets. Given Europe’s relative caution on fiscal policy, this is ominous. But surely, you say, I am forgetting climate change – where US leadership is so badly needed, and where the Obama administration has promised a clean break with past policy. Thanks for mentioning it.

Mr Obama’s recent budget proposed a cap-and-trade system to curb carbon emissions and raise more than $600bn (€451bn, £420bn) in new revenues over 10 years. Equipped with this bold new initiative, Mr Obama’s team could head to the Copenhagen climate conference in December and assume the leadership role on global warming that the US has hitherto shunned. The trouble is, many Democrats as well as most Republicans are opposed to cap and trade. They see it as a big new tax – a position that the administration, curiously enough, wishes to deny. Asked this week whether cap and trade would be "a tax on gasoline, electricity and other forms of energy", Peter Orszag, budget chief, said: "I wouldn’t characterise it like that."

However Mr Orszag would characterise it, Congress now seems likely to leave cap and trade out of the budget, and so far the administration is failing to put up a fight. US negotiators may have to go to Copenhagen with good intentions but no actual policy. Opinion polls in the US show a disparity between Mr Obama’s personal approval rating, which remains high, and views about his policies, which are less favourable. A poll of world leaders would likely echo the sentiment. At home and abroad, then, the same two questions arise. How long can Mr Obama remain popular if his actions, for one reason or another, are not? And what is popularity worth anyway, where the calculus of ends and means remains unmoved?

While his popularity is astronomical, American policies are not. He will be hard-pressed to win concessions on his plans for the economy or Afghanistan. The new American president's debut on the world stage, beginning Tuesday in London in advance of the Group of 20 meeting, is sure to have its share of "Hello!" magazine moments and glamour. He will, after all, meet with Queen Elizabeth II, an established member of the thin upper crust of global personalities and an international rock star in her own right. But President Obama may be speaking sotto voce and out of the spotlight while in the company of presidents and prime ministers. That's because he is expected to articulate positions and prescriptions that are out of step with leaders from Western Europe, China, Russia, India, and beyond – on issues ranging from the global economic crisis to the war in Afghanistan.

Indeed, Mr. Obama may well find himself in the inverse position from where George W. Bush stood by the end of his White House run. Whereas Mr. Bush enjoyed greater cooperation and like-mindedness with many key foreign leaders, though he remained unpopular with the international public, Obama is expected to encounter an adoring public but a deep skepticism – even resistance – among heads of state. "By the end of his second term, Bush was much closer to the European governments than he had been, but he was still strongly disapproved of by a lot of the general public," says Reginald Dale, an expert in transatlantic affairs at the Center for Strategic and International Studies (CSIS) here. "Obama is adored by the general public but still has to prove himself to the governments."

How well Mr. Obama can parlay his personal popularity into convincing leadership is a key question hanging over his global coming-out party. With many leaders blaming the United States for planting the seeds of the first global recession since World War II, America's ability to continue as the world's unrivaled power, whether in economic or other matters, is likely to be an undercurrent of meetings with the G-20 leaders, NATO, and in bilateral meetings with his counterparts. "There is a certain paradox or irony to this trip, in that Obama remains wildly popular in Europe and elsewhere, with Europeans still giddy about Bush's replacement by a president who is much closer to European preferences and sensibilities," says Charles Kupchan, an international-affairs expert at the Council on Foreign Relations (CFR). "Yet when it comes to the big issues to be treated on this trip ... Obama seems unlikely to preside over any meeting of the minds or to succeed with either his popularity or power in winning foreign leaders over to America's positions."

Obama is the first American president to preside over an international system that is dramatically different from the one stitched together after World War II and the cold war, when America unquestionably sat in the driver's seat, Mr. Kupchan adds. "Now the Chinese and the Russians, the Indians and Indonesians and Turks, are much more willing to flex their muscles and demand their fair share of decisionmaking in global councils," he says. Besides the highlight of meeting the British sovereign, an event Obama is said to be anticipating with excitement, the new president will attend several meetings during his eight days abroad:

A Group of 20 summit in London Thursday, where leaders of the world's largest economies will address the global financial crisis.

A weekend NATO summit in France likely to be dominated by the alliance's faltering effort in Afghanistan.

A US-European Union summit in the Czech Republic. The leader of the EU last week called Obama's proposal for larger global economic stimulus packages "the way to hell."

Two days of meetings and events in Turkey, including an international conference on reducing tensions between the Muslim and Western worlds.

A raft of bilateral meetings with figures ranging from Russian President Dimitry Medvedev and China's Hu Jintao to the leaders of India and Saudi Arabia.

The White House recently signaled it has all but given up hope that the leaders Obama meets this week will make major commitments along the lines the US would like to see – either in terms of big spending packages for the economy or of additional troops or resources for Afghanistan. Instead, US officials are offering a scenario in which Obama leads by listening – a departure from his predecessor, they say – and by example. "The president and America are going to listen in London, as well as to lead," said White House spokesman Robert Gibbs in a pretrip briefing. "Many of the things that we've done over the past couple of weeks ... demonstrate that America is leading by example."

That shift has caught the attention of diplomatic analysts, some of whom say the new tack is likely to win praise, if not a change of heart on concrete steps, especially from European leaders. "The [administration's] goal is, I sense, to provide a balance of providing a strong sense of leadership, but ... that, also, we have a president now who's listening," says Stephen Flanagan, a former senior director for Central and Eastern Europe at the National Security Council and now at CSIS. "That was one of the big laments, I think, about the previous administration – that they seemed to be more in broadcast mode all the time." The era of diffused global power has been emerging for much of the past decade – but it was something the Bush White House tried to resist, says CFR's Kupchan. "The Bush administration should have been the one to grapple with a rebalancing of global power," he says, "but that agenda was put off by the events of 9/11."

Not only is Obama "playing catch-up," he says, but he must also confront "a certain backlash against the American economic model." Some European officials say too much is being made of transatlantic differences over stimulus packages and troops to Afghanistan. They sense, rather, a growing cooperation on a wide range of international issues – global warming is often cited as Exhibit A – based on increasingly like-minded thinking. Scoffing at predictions of dissonance on Obama's trip, Klaus Scharioth, Germany's ambassador to Washington, predicts: "You will see a new era of revitalized cooperation between America and Europe."

In the wake of the biggest financial shock since 1929, economists say the odds of a depression are less than 50-50 -- though still uncomfortably high. But even if a depression comes to pass, a 21st-century version would look very different from the one 80 years ago. There is no consensus definition for "depression." Harvard University economist Robert Barro defines it as a decline in per-person economic output or consumption of more than 10%, and puts the odds of a depression at about 20%. Many economic historians say the line between recession and depression is crossed when unemployment rises above 10% and stays there for several years.

The current recession, though severe, is not at depression levels now. Unemployment in February was at 8.1%, not as bad as in the early 1980s -- the last time the idea of a depression was being kicked around seriously, when it remained over 10% for 10 months. In the Great Depression it reached 25% "When you get an unemployment rate of 25%, it's everywhere," recalls economist Anna Schwartz, who is 94 years old and best known for her analysis of the causes of the Great Depression with the late Milton Friedman. "Everyone is conscious of that and fearful. We're not talking in that league at all." Using the Barro definition, economists in a Journal poll conducted in early March put the odds of a depression at 15%, on average. But there was wide disagreement. John Lonski, chief economist at Moody's Investors Service, put the depression odds at 30% in early March, but better-than-expected news recently has led him to put it closer to 20%.

In contrast, Paul Kasriel of Northern Trust put the odds of a depression at just 1% because of the aggressive lending by the Federal Reserve and the fiscal stimulus just beginning to hit the economy. "There are just too many powerful countercyclical policies in place that will prevent the worst-case scenario," he says. Today's government response is a far cry from the early 1930s, when the Fed raised interest rates, the infamous Smoot-Hawley Tariff Act crushed trade and Treasury Secretary Andrew Mellon's prescription for the economy was "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." "The Great Depression was a mass of policy errors that made it worse," says historian and investment consultant Peter Bernstein, 90. "This time we have our fill of policy errors, but at least they're not making it worse."

Mr. Bernstein lived on Manhattan's Upper West Side during the Depression. "You were conscious of it all the time when you were out in the street," he says. "People looked so threadbare." The different structure of today's economy means that a modern depression would differ from the Great Depression of the 1930s. Fewer than 2% of Americans working today have agricultural jobs, compared with one in five in 1930. Three-quarters of today's workers are in service-related jobs, which tend to be more stable than manufacturing, compared with fewer than half in 1930. And then there are the social-safety-net programs that emerged after the Great Depression to blunt the blows. "There were no unemployment insurance, no food stamps, none of the automatic things that maintain some income for people who are out of work," says former Massachusetts Institute of Technology economist Robert Solow, a Nobel laureate. Mr. Solow, 84, grew up in Brooklyn, N.Y., and remembers his parents' constant worry about the next month's money.

With spending on food accounting for a little less than a tenth of a typical family's disposable income today, compared with a little less than a quarter in 1930, a modern depression wouldn't hit people in the stomach as the Great Depression did. Growing up on a Wisconsin farm, Catherine Jotka, 89, remembers taking dried corn meant for animal feed out of the granary and sifting dirt out of it to make corn bread. Today's cutbacks would be for more discretionary purchases -- cable television, iTunes songs and restaurant meals. And there's plenty of room for trimming, says Victor Goetz, 81, a retired engineer who lives outside Seattle. "This has a whole different feel than anything we had in the 1930s," he says. Even if the downturn isn't deep enough to be called a depression, the restructuring that it needs to go through means that even after the economy bottoms out, there could be a "lost" four or five years of sluggish growth, says Nobel laureate Paul Samuelson, 93.

As a University of Chicago student during the Depression, Mr. Samuelson remembers attending economic lectures that seemed completely out of step with the times, based on laissez-faire principles that stopped making sense after the 1929 crash. "I was perplexed because I could not reconcile the assignments I got from these great economists with what I heard out the windows and I heard from the street," he says. Starting in the 1980s, the U.S. saw an extraordinary period of economic quiescence, where growth was steady and policy makers dealt with financial crises handily. Economists began to doubt the possibility of a financial crisis so severe it would upend the economy. And that left them as blindsided as their counterparts when the crisis came 80 years ago.

To many in the West, Russia's oil wealth is an addiction that has warped its economy. Russian energy czar Igor Sechin considers that envious nonsense. Russia's resources "are a God-given good that should be used effectively," he said in his first major interview with a foreign media outlet. "Somebody is always wanting to take them away." Widely considered the Kremlin's hard-liner-in-chief, Mr. Sechin is one of Russia's most powerful officials. He was a longtime aide and confidant to Vladimir Putin before Mr. Putin became president in 2000.

Last year, Mr. Sechin took over as deputy prime minister, responsible for the vast energy sector, when Mr. Putin became premier. Until recently, Mr. Sechin rarely spoke to the media, giving an aura of malevolent intrigue that was fueled by rivals who cast him as the author of the Kremlin's assault on oil giant OAO Yukos, among other things. In recent months, he has raised his public profile. In a wide-ranging, 90-minute conversation, Mr. Sechin sought to play down differences between hard-liners and liberals in the Kremlin. But his views on energy policy, state ownership and other issues often differ significantly from those of more pro-market and pro-Western colleagues, highlighting tensions within the cabinet.

"One should be objective and judge by effectiveness," he said before leaving on a trip with Mr. Putin to an auto factory in southern Russia. "Let the senior comrades make the assessment. I have my management and it regularly corrects me." He disagreed with Western economists and some liberal Russian officials, such as First Deputy Prime Minister Igor Shuvalov, who have suggested that Russia would be better off if oil prices don't go too high, arguing the surge in income in recent years has hampered needed efforts to diversify the economy. Mr. Sechin credited the oil boom with allowing Russia to build up the reserves it is now spending to support the economy.

And he was quick to point out that Russia became a major oil exporter in the 1970s in response to demand in the West amid the Arab oil embargo. "Now they tell us, 'You have Dutch disease, you're a resource economy.' But you yourselves asked us to be that way," he said. Mr. Sechin is Moscow's point man for warming relations with the Organization of Petroleum Exporting Countries. But he said Russia, the largest oil producer outside the cartel, isn't ready to accept membership in the group, despite its pleas. "It would be irresponsible for Russia to join OPEC because we can't directly regulate the activity of our companies," he said, as nearly all are privately owned.

Yet, he supports "coordinating actions" with the cartel because of the shared interest in lifting prices. He said Moscow isn't in a position to mandate lower production, but Russian oil companies will curb output this year as falling prices cut into their ability to produce. He figured that if oil slides back under $40 a barrel, Russian output this year could fall twice the amount the government now forecasts, or about 300,000 barrels a day. Russia, he added, wants to keep oil prices between $60 and $100 a barrel. To help ensure that, Moscow is considering building a reserve of crude to allow it to react to market shifts. In addition, Mr. Sechin said Russia has put off auctioning development rights for some big, new export-oriented fields.

At current prices, he said oil companies are starved for vital capital to invest in new projects. "If companies don't have access to stable financial resources for the long term, that could lead to a shortage and to a sharp increase in prices for oil and oil products," he said. "That might not alarm consumers very much now because demand is falling, but when the recovery begins...this situation could develop." Mr. Sechin called for a gradual but major overhaul of the international oil trade, adding tight regulation and longer-term supply contracts, eliminating "economically unjustified intermediaries" and reducing speculation. Russia is the world's No. 2 crude exporter. Mr. Sechin hailed BP PLC's TNK-BP Ltd. joint venture in Russia as a sign of Russia's openness to foreign investment in the sector. But he singled out secretive Siberian giant OAO Surgutneftegaz as "Russia's best private oil company." Investors have criticized Surgut for refusing to release international-standard financial accounts or details of its ownership structure.

Speaking about the Russian economy as a whole, Mr. Sechin said the government isn't planning to take over troubled companies. "There is no goal of nationalizing," he said. "I remind you that in the West, this process is under way and it's much harsher. But not here." Mr. Sechin said the government is supporting companies, but would consider nationalizing only "in exceptional cases, when shareholders ask or [when] it would have influence on systemically important companies." The government early this year rejected offers from some heavily indebted tycoons to convert loans from state banks into minority equity stakes in their companies. "Nobody is taking anything from anyone," he said. "They should drink the cup of their responsibility to the end."

Belgian financial-services company Fortis Holding said Tuesday it plunged to a €28 billion ($36.95 billion) loss in 2008 because of the sale of its banking activities. The company made a €4 billion profit in 2007. Fortis Holding owns the businesses that were left after the former banking and insurance giant Fortis NV was broken into national branches and sold to the Dutch and Belgian governments last year. Belgium has since agreed to sell 75% of Fortis Bank to French lender BNP Paribas SA. Fortis shareholders, who rejected a sale deal earlier this year, will vote on the recently amended agreement at extraordinary general meetings on April 8 in Utrecht and April 9 in Brussels.

Fortis said it lost €27.4 billion last year because of discontinued operations, with the sale of banking activities accounting for €29.4 billion. However, it made a €2 billion profit from the sale of its Dutch insurance operations. Fortis said its insurance activities posted a €6 million profit last year, thanks to the strong performance of its Belgian branch. The company reiterated it won't pay a dividend on 2008 earnings, but said it is now looking at ways of deploying capital for organic growth and acquisitions. "It is now important to focus on the future," Chief Executive Karel De Boeck said. "That future will include a careful review of the various options available to ensure that capital is employed effectively, including organic growth, acquisitions and the return of capital to shareholders."

Mr. De Boeck said he didn't know whether Chinese insurer Ping An, the company's biggest shareholder, was going to vote in favor of the new deal with BNP Paribas at the upcoming shareholders meeting. "We have given them all the explanation that you can reasonably expect" a company to give to its biggest shareholder, Mr. De Boeck said. Ping An holds a 5% stake in the company and its decision to vote against the earlier BNP Paribas deal in February was seen as pivotal. Fortis shares, which have lost 92% of their value in the last 12 months, were recently trading 2.8% higher Monday in Brussels. Earnings "exceeded our expectations," said Bank Degroof analyst Ivan Lathouders. Both the Belgian and the international insurance units "performed relatively well and the negative impact on the investment portfolio was smaller than expected," he noted. Mr. Lathouders also raised his target price on Fortis.

Congressional Democrats are warning the Obama administration that some of the party’s lawmakers may join the growing ranks of the nation’s unemployed unless the economy shows signs of improvement by September. Democrats say a recovery may not begin until 2010 at the earliest, and initial gains may be too weak to register with voters, since it can take up to a year for any upswing to trickle through the economy. For the Democrats, who control the White House and Congress, that delay may create a backlash in next year’s midterm elections, when 435 House districts are on the ballot, along with one-third of the Senate’s 100 seats. "By the fall, we have to see an uptick," said Representative Bart Stupak, 57, a Michigan Democrat.

That isn’t likely in Stupak’s state, where February’s unemployment rate of 12 percent was the highest in the nation. In addition, President Barack Obama yesterday gave deadlines to two of Michigan’s largest employers, Detroit-based General Motors Corp., the biggest U.S. automaker, and Auburn Hills- based Chrysler LLC, the No. 3 car company, to "fundamentally restructure" or lose government aid that has kept them alive. GM and Chrysler lost a combined $39 billion in 2008. While Stupak’s seat is considered safe, two of Michigan’s first-term Democratic incumbents -- Representatives Gary Peters and Mark Schauer -- already face competitive races next fall, according to the nonpartisan Cook Political Report, a Washington-based publication.

Signs of economic stress are visible across Michigan. Many of the homes on streets near Chris Benedict’s house in Alpena, in the northeast part of the state, are for sale, and few of them are selling. A cement factory in town, owned by Herndon, Virginia-based Lafarge North America Inc., recently announced it would fire more than 100 workers. "It’s a bleak situation, people are looking for work, but there’s nothing out there," said Benedict, 45, a social worker who voted for Obama. "I think people want to see things getting better by the end of summer, maybe sooner." Democrats aren’t the only ones at risk. Democratic Senator Evan Bayh of Indiana, who is up for re-election next year, said incumbents in both parties could pay a price.

Obama "has perhaps an extended grace period because he inherited the problems, and people are well aware of the extensive magnitude," said Bayh, 53. "But it’s not infinite." The president has said he believes the public will be more patient than Congress when judging his progress on fixing the economy. Representative Alcee Hastings, a Florida Democrat, disagrees. "The bloom is off the rose as far as Obama-mania is concerned," Hastings said. "People are beginning to ask the hard question, and that is, ‘when is there going to be some improvement that is going to affect me?’" Economists offer varying predictions of when the economy will rebound.

Alice Rivlin, a former Federal Reserve Board vice chairman, said she doesn’t expect a return to growth by early 2010. "I’ve been a little nervous in the other direction," Rivlin, a scholar at the Brookings Institution, a research organization in Washington, said in an interview. The Labor Department reported the U.S. unemployment rate reached 8.1 percent in February, the highest level in a quarter century. Economists surveyed by Bloomberg News earlier this month predicted the jobless rate would climb to 9.4 percent this year and remain above 8 percent through 2011. Hastings, 72, said he is concerned Obama’s two-year, $787 billion economic-stimulus package approved by Congress last month won’t have enough impact. "The stimulus is a pittance by comparison to the problems that are coming," he said.

Senator Barbara Mikulski, 72, a Maryland Democrat who also is up for re-election next year, said she will be gauging voter sentiment around July’s Independence Day holiday to determine whether the economy poses challenges for Democrats. "I’ll know how comfortable I’ll feel, and whether people are seeing red or we’re staying blue," she said. Mikulski’s party may have advantages in the Senate, where Republicans have 20 seats up for re-election, compared with 17 for Democrats. In addition, four Republican senators have announced their retirement, including three in states Obama carried in 2008, Florida, Ohio and New Hampshire.

In the House, Democrats, who hold a 76-vote margin, have about two-dozen vulnerable seats, compared with just six on the Republican side, according to the Cook Report. Eleven of those House Democrats are from states with unemployment rates above the national average. And each of those seats leans Republican in voter registration. These include the seats of Representative Bobby Bright of Alabama, Representative Jerry McNerney of California, Representative Jim Marshall of Georgia and Representative Alan Grayson of Florida. Midterm elections early in a presidency have meant House- seat losses for the party in control of the White House in almost every election since 1934, said Charles Franklin, a political science professor at the University of Wisconsin at Madison.

For instance, Republicans lost 26 House seats in 1982 during Ronald Reagan’s first term and in the midst of a recession. The one exception was 2002, during President George W. Bush’s first term, when the Republicans gained six seats. "Based on the historical record, you would certainly bet on Democrats losing seats next year," Franklin said. Democrats who are concerned the economy will start to drag on Obama’s approval ratings, currently around 60 percent, later this year are probably right, said Michael Dimock, associate director of the Pew Research Center in Washington. "If the economy does not turn around by the fall or winter, it may not sink in with the public" in time for the November 2010 elections, he said.

"I suppose if it doesn’t turn around, people will say, ‘they had a chance and they didn’t get it done,’" said Representative Dennis Moore, a Kansas Democrat. The potential for a political backlash will hinge in part on whether Obama and his economic team can keep the public’s confidence in his stewardship of the economy, said Representative Elijah Cummings, a Maryland Democrat. He said that was damaged this month by public outrage over the bonuses paid to employees at American International Group Inc., which has received $182.5 billion in federal funds. Obama "has the confidence of the people right now," said Cummings, 58. "But the AIG matter has had an effect on all of us in government."

U.S. farmers are preparing to plant record amounts of soybeans and demand for corn is falling, driving prices to the lowest levels in more than two years. Just a year after record grain costs sparked riots in Egypt and food shortages in Argentina, U.S. farmers will sow crops on a record 163.7 million acres, according to a Bloomberg News survey of 24 analysts and traders last week. Soybean fields will expand by 4.5 percent. While corn acreage will slip 1.5 percent, the recession will force livestock, dairy and ethanol producers to cut purchases, leaving the highest inventories for March in two decades, the survey shows. "The wheels are already in motion to produce more than the world needs, barring any unusual weather," said Jim Gerlach, president of A/C Trading Inc., a brokerage in Fowler, Indiana.

Cash prices of soybeans will probably drop 28 percent this year to below $6.50 a bushel for the first time since April 2007, while corn will tumble 31 percent to less than $2.50, the lowest since October 2006, said Commodity Information Systems President Bill Gary, who has been trading grain since 1961. "This recession is going to last a lot longer than the one in the 1970s," hurting demand for raw materials, Gary, 68, said by telephone on March 26 from Oklahoma City. "I don’t see any major bull move in commodities in the next several years," said Gary, who correctly predicted in July that prices would plunge as credit tightened. Corn and soybean prices fell to the lowest in at least two weeks on the Chicago Board of Trade as tumbling equities dimmed the demand outlook. Corn slipped 0.75 cent to $3.8625 a bushel after earlier reaching $3.7675, the lowest since March 12. Soybeans fell 12.5 cents to $9.045 a bushel after touching $8.97, the lowest since March 16.

Cheaper crops may contribute to a drop in U.S. farm income after two years of record profits, threatening to reduce growers’ $367.5 billion in sales last year and curb purchases of Monsanto Co. corn seeds, Agrium Inc. fertilizer and Deere & Co. tractors. The U.S. Department of Agriculture estimated last month that net farm income will decline 20 percent to $71.2 billion this year from $89.3 billion in 2008. "Farm income has to come down," said Michael Swanson, a senior agricultural economist at Wells Fargo & Co. in Minneapolis. "We don’t need any more wheat, soybeans or cotton, and corn supplies should be adequate with the drop in demand." Farmers are planting more soybeans because they cost about 32 percent less to raise than corn, according to a University of Illinois study. Informa Economics, a private forecaster in Memphis, Tennessee, told clients on March 13 that soybean acres may exceed corn for the first time ever.

Analysts in the Bloomberg survey on average expected farmers to plant soybeans on 79.11 million acres, up from 75.72 million last year. The increase is equal to the state of Connecticut, plus 279 square miles. To make room, growers probably will use less land for corn, the most-valuable U.S. crop. Planting will drop to 84.7 million acres from almost 86 million last year, the Bloomberg survey shows. Corn stockpiles at the beginning of March probably totaled 7.012 billion bushels, up 2.2 percent from a year earlier and the highest for that date since 1988, analysts in the survey said. The Agriculture Department will issue its first projection of spring plantings tomorrow based on surveys of about 86,000 producers from Feb. 27 through March 16. A second survey in June will show what farmers did.

The cost of planting corn in Illinois, the second-biggest U.S. producer, will rise as much as 34 percent this year, according to a survey by the University of Illinois in Urbana. In northern parts of the state, the cost will jump 30 percent to $532 an acre from $408 a year earlier, including fuel, seed, fertilizer, pesticides, machinery and labor, the survey shows. While expenses for soybeans will jump about 19 percent to $311 an acre from $261 in 2008 in northern parts of the state, it’s still cheap enough to reduce the corn crop, said Gary Schnitkey, a professor in the university’s agricultural and consumer economics department. Patrick Solon, 45, who farms corn and beans on 1,200 acres near Streator, in northern Illinois, said his costs for seed, fertilizer and machinery will jump at least 25 percent this year. He plans to plant 720 acres of corn, down 14 percent from about 840 last year. "My income is going to fall this year and I’m putting aside some of last year’s profit for next year," Solon said by telephone.

The final acreage mix probably will depend more on Midwest weather in the next 60 days than on commodity prices, based on historical patterns, said William Tierney, a senior economist for LMC International in Washington. There are some signs that farmers have economic incentives to plant corn rather than soybeans, he said. The current price ratio of post-harvest soybeans to corn is 2.05, up from 1.97 on March 13. A ratio above 2.4 is a signal to plant more soybeans, and below 2.1 suggests farmers should plant more corn, Tierney said. He expects prices of both to rise because farmers won’t apply as much fertilizer this year, reducing global supplies faster than demand declines. Crop prices are among the biggest losers this year on the Reuters/Jefferies CRB Index of 19 commodities. While gasoline rallied 48 percent and copper 32 percent through March 27, wheat plunged 17 percent to $5.0725 a bushel on the Chicago Board of Trade, corn dropped 4.9 percent to $3.87, and soybeans slipped 6.4 percent to $9.17.

All three are down at least 40 percent from records last year, when consumers and exporting countries hoarded supplies and the United Nations’ World Food Programme said higher prices meant a $755 million increase in the cost of feeding the world’s hungry. Soaring grains led to riots and protests in 34 countries last year, including Egypt, where bread costs jumped more than 25 percent in 12 months. Food shortages from a farmers’ strike in Argentina prompted street demonstrations in Buenos Aires. Growers responded to rising prices by increasing production of wheat, corn, barley, rice and soybeans 4.5 percent to a record 2.29 billion metric tons last year, raising inventories before this year’s Northern Hemisphere harvest by 16 percent to 466 million tons, data from the USDA shows.

While the Organization of Petroleum Exporting Countries reduces oil production and metals companies including Freeport McMoRan Copper & Gold Inc. shut mines and smelters to prop up prices, farmers are unlikely to leave land fallow. The world grain harvest in the 12 months through June 2010 will probably be 3.4 percent smaller than the current year’s record high, the International Grains Council said on March 26. Rising reserves will cushion the drop, keeping supplies at an all-time high, the group said. "There is a big difference between renewable commodities such as grains, oilseeds and livestock and non-renewable commodities such as energy and metals," A/C Trading’s Gerlach said. "It is difficult to idle farm ground to cut production like miners and energy producers, so there is a lag in the time supply and demand will be balanced in agriculture."

The CRB index is down 53 percent since reaching a record on July 3 as the World Bank forecasts the global economy to shrink for the first time since World War II. U.S. gross domestic product contracted at a 6.3 percent annual rate in the fourth quarter, the weakest since 1982, Commerce Department data show. Slumping livestock production and a collapse in ethanol industry growth are the biggest reasons for slowing grain demand. About 49 percent of U.S. corn consumption is for animal feed, and domestic cattle, hog and poultry producers plan to reduce their herds and flocks simultaneously for the first time since 1973, USDA data show. The number of dairy cows is declining, with farmers selling more animals for slaughter as the average U.S. milk price drops to the lowest since before 1980, according to the department. Cattle ranchers have lost money for 21 straight months, according to Ron Plain, an economist at the University of Missouri in Columbia. Feedlot operators had losses of $150 per steer and heifer sold in February, compared with $230 a head in January, Plain said. The U.S. cattle herd on Jan. 1 was the smallest since 1959 at 94.5 million head, the USDA said.

Hog producers lost $21.50 per head in February, compared with $23 per animal in January and $24 in February 2008, Plain said. Producers only made money in August and May during the past 17 months, he said. The total hog inventory on March 1 fell 2.7 percent from a year earlier. "Speculators can bet on higher prices from reduced acreage, but that will only intensify the liquidation cycle in the U.S. livestock industry" by boosting feed costs, said Dale Schultz, a commodity specialist for Gottsch Enterprises, the cattle and hog producer in Hastings, Nebraska. Ethanol sales haven’t kept pace with the industry’s expansion, as the 64 percent plunge in crude-oil prices from the record in July has curbed demand for alternative fuels. Increased U.S. fuel-efficiency standards may cap the growth in ethanol just as yield-enhancing seed technology from St. Louis- based Monsanto boosts corn output, Wells Fargo’s Swanson said.

About 3.7 billion bushels of corn will be distilled to ethanol in the marketing year that began Sept. 1, up from a February forecast of 3.6 billion and 22 percent more than last year, the USDA said this month. In February 2008, it forecast 4.1 billion bushels would be used for ethanol this year. Ethanol production will consume about 31 percent of this year’s U.S. corn crop, up from 23 percent in 2008, the USDA forecast on March 11. Distillery shutdowns from New York to California are gripping the industry as producers curb output or seek bankruptcy protection. Archer Daniels Midland Co., the second-largest U.S. maker of the fuel, estimated on Feb. 3 that 2.7 billion gallons, or 22 percent of U.S. capacity, was idle. At least six companies have sought bankruptcy protection in the past year, including VeraSun Energy Corp., once the largest publicly traded ethanol producer. The Sioux Falls, South Dakota, distiller entered Chapter 11 proceedings in October after bad bets on corn prices.

Every 1 billion gallons of ethanol production requires about 7 million acres of corn, Wells Fargo’s Swanson said. He estimates corn demand for ethanol may fall to as little as 3.4 billion bushels this year. "We can lose 2 or 3 million acres of corn and not significantly tighten supplies," Swanson said. Farmers have little choice other than to keep planting and hope that crops in another area are damaged by weather, said Byron Jones, 68, who farms near Saybrook, Illinois. The economics may get even worse next year, as higher costs and lower revenue curb profit, making loans harder to get, he said. "Global demand has diminished because of falling incomes," Jones said. "Agriculture always lags the rest of the economy."

Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff's sale had been set, and notices about the foreclosure process were piling up in her mailbox. Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss. So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff's sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

"I thought, `What kind of game is this?' " Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable. City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure. In Ms. James's case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

"It is what some of us think is the next wave of the crisis," said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law. For older industrial cities like South Bend, hard times in the mortgage market began before the recent national downturn, as did the problem of bank walkaways. In the case of Ms. James, a home health care administrator, the foreclosure proceedings began in the summer of 2007, when she could not keep up with the adjustable rate on her mortgage. In Buffalo, where officials said the problem had reached "epidemic" proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were "a rare occurrence two to three years ago." "We're seeing them dumped more and more at the moment," she said. Experts suggest the bank walkaways are most visible in states where foreclosures are processed through the courts and therefore tend to be more transparent. Other states, like Indiana and New York, have court-mandated foreclosures, but roughly half of the states allow foreclosures to proceed without court intervention, making it difficult to accurately count the number of bank walkaways in recent months. The soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders' decisions to walk away, said Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors' rights firms in the country.

"Oftentimes when the foreclosure starts out, it's a viable property," Mr. Rothenberg said, "but by the time it gets to a sheriff's sale, it might not have enough value to justify further expense. We've always had cases where property was vandalized or lost value, but they were rare compared to these times." The problem seems most acute at the bottom of the market — houses that were inexpensive to begin with — and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. Banks and investors typically lose 40 percent to 50 percent of their investment on every foreclosure.

Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said some properties had become such liabilities for investors that it was not even worth holding on to them to strip valuable fixtures, like kitchen appliances, toilets and hardware. "The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can," Mr. Cecala said. "It's just a sign of the times that things are so bad no one wants to take possession of the property." In South Bend, boarded-up houses for whom no one has stepped forward are dotting the landscape, adding a fresh layer of blight to communities that were already scarred from the area's industrial decline. The city is hoping to create a new type of legal mediation process that would bring together the homeowners and the mortgage holders to settle their disputes while allowing the owners to remain in the home — considered crucial to any stabilization effort.

"I'd say in the last three or four months, we've seen dozens of these cases," said Chuck Leone, the South Bend city attorney. "We see it one of two ways. One is that the bank will simply dismiss the foreclosure complaint. The other is that the mortgage holder will follow through and take a judgment of foreclosure, but then not schedule the property for sheriff's sale." In Ms. James's case, it has been impossible to determine who canceled the sheriff's sale, since her last mortgage holder went out of business. Even the city clerk's records did not provide an answer. "Nobody has any idea who owns what or who's responsible," said Judy Fox, Ms. James's lawyer at the Notre Dame Legal Aid Clinic. "It's a very common story."

Mayor Stephen J. Luecke of South Bend added: "It's just a crime the way it puts people in limbo. They first off have gone through the grief of losing their house, then they move out and find out that they still own it and have responsibility for it." In Jacksonville, Fla., Sylvester Kimbrough Jr. found himself caught in the limbo between foreclosure and ownership last year, 10 years into his 30-year mortgage on a $42,000 two-bedroom house. Mr. Kimbrough, 56, a former driver for a car dealership who is now unemployed, had already moved out when he learned that the foreclosure had been stopped. "That move really almost destroyed us," Mr. Kimbrough said. "It was all for nothing."

Kim and Robert Discianno had the American dream. Now, they rent a few streets away. The Disciannos moved from Aurora, Ill., to their home here in Plano three years ago, lured to the outermost fringes of suburbs, known as the exurbs, by the promise of owning their first home. Today, their credit is shot and they no longer own, but Ms. Discianno still has a four-hour commute. The Disciannos are among many exurban families losing their homes and their grip on the dream of home ownership. The exurbs were among the fastest growing counties during the boom -- entire civilizations built around the idea of owning real estate. With home prices falling and unemployment rising, more people are renting -- just as they had before the boom -- and turning the community into a rental economy.

Renting is one of the few ways for people to stay in the area and keep landlords afloat. It can be good for the overall economy because it promotes mobility. When the economy turns downward, renters are more willing than owners to move to a region where jobs are more plentiful. But that same mobility can make for less stable communities and lower property values. Some observers believe the growth of rental property is the first in a series of steps that will transform today's exurbs into tomorrow's low-income housing. These communities have a low tax base made up mostly of property and sales taxes, both of which are in decline. Lawrence Summers, economic adviser to President Barack Obama, has often explained it this way: "No one in the history of the world ever washed a rented car."

What is happening on the urban fringe is similar to the urban decay that plagued cities after World War II, says Christopher B. Leinberger, a real-estate developer and visiting fellow at the Brookings Institution. "Single-family homes and townhouses in cities were broken into rental units. Now, we're seeing that phenomenon move out to the fringe." More than three million homes have either been lost to foreclosure or a foreclosure-related sale between 2006 and 2008, according to Moody's Economy.com. And the decline in home prices and concentration of foreclosures is generally worse in outer-lying communities than in the central city or closer-in suburbs. The tug of home ownership in the exurbs changed how much of America lives and works. These outer-lying communities further popularized the "McMansion" and turned two-hour commutes into four. People didn't necessarily prefer to move so far out, but they did so for the promise of a home, a yard and tax-deductible interest payments.

Many lower-salaried workers were able to afford their first home, while higher-paid professionals could trade up to a larger house with a big yard and a game room. About 17 million people, 5.6% of the U.S. population, lived in the exurbs in 2007, according to the Brookings Institution, compared with 14 million people in 2000. Kendall County, about 50 miles west of Chicago, was one of the fastest growing exurbs during the boom years. The county's population about doubled during the housing boom, to some 100,000 residents in 2008 from roughly 55,000 in 2000. As people moved in, starter homes and shopping centers rose among worn barns and silos. The residents who came over the past few years have average incomes about 20% lower than established residents, according to an analysis of Internal Revenue Service data by Kenneth Johnson, senior demographer at the University of New Hampshire's Carsey Institute. About a third of Kendall County's labor force are in management and professional jobs, compared with 41% in nearby DuPage, an established suburban county where homes cost more.

Now, as the housing bust and recession has turned the exurbs from engines of growth to economic laggards, many of these families have the worst of both worlds. They are still on the fringes but have no equity. In many cases the amenities they hoped would follow -- new shopping centers, movie theatres -- have ceased construction or opened with only a few stores. Government projects like new schools and parks have also been delayed as budgets get cut and population growth has slowed. In the Lakewood Springs development here where the Disciannos live, "For Sale" and "For Rent" signs are everywhere. A few have driveways littered with abandoned couches and stereos, and in some cases homeowners are living next to tenants paying half the cost of a mortgage.

Couples like the Disciannos mirror the economic arc of the exurbs. With a no-money-down mortgage, the couple bought a $235,000 three-bedroom house in Plano, doubling Ms. Discianno's round-trip commute to more than four hours. Ms. Discianno, an IT project manager for a Chicago law firm, says at first the trade-offs were worth it. At the family's apartment complex back in Aurora, Ms. Discianno says she often felt guilty about raising her two children in cramped quarters. On a few occasions, the neighbors complained when her daughter played hopscotch on a common walkway, and Ms. Discianno had to limit sleepovers to one friend for lack of space. Their house in Plano had a back yard and nearby jungle gyms.

"We could actually own something and afford it," says Ms. Discianno, who was able to pay the early payments of $1,500 a month. It was great for the kids, she says. "Friends can come see them, instead of them always going somewhere else." As land values rose, the couple's combined mortgage and property tax payment soared, to $2,900 from $1,500. Rather than struggle with the bills, the family abandoned their home to the bank, moved out, and found a new home to rent. They didn't have to look far: The Disciannos found a smaller home in the same development for $1,500. That home was owned by investors who had hoped to sell it -- but settled on renting it instead. The new home is about the same size as the apartment they used to rent, and sleepovers are again limited to one friend per night.

Many owners were initially concerned about renters. The homeowners' association at the Lakewood Springs development has restrictions on how rental properties can be advertised. But feelings have shifted with foreclosures turning occupied homes into vacancies that are worse for the local economy. "Overall, a community of owners versus renters is obviously going to be better," said Tim Jones, a satellite television technician, and a friend of the Disciannos. But after four years of struggling to pay his own mortgage, Mr. Jones says he has no equity to show for it. He may end up walking away from his home, he says, which may end up turning him into a renter as well. While she still owned a home, Ms. Discianno opposed renters and voiced concerns about them at a homeowners' association meeting. "I was very against it too," she says. "It doesn't do much for property values."

Since I have lived here 13 years and have many dear friends, your "machete time" comment gives me a cold chill. Housing had a huge bubble here and many of my friends, none of whom are rich, have most of their assets tied up in their houses. The real estate market is in a Mexican stand-off, with buyers and sellers rarely agreeing on value. But things have changed - it will be 9 mm time instead of machete time until the ammo runs out. Much of the culture is gangsta wannabe. I gave notice in October and will be out for good around August 1 headed for somewhere in America Latina, with the high mountains of Peru currently my most leading contender. Fortunately, all my assets are very liquid.

David

So you want some financially astute humor. Try Michael Lewis, Wall Street on the Tundra.

Dan, you raise very good points. The only area I would quibble with is there are key differences between the long term views held by doomers and free market supporters.

Capitalists, such as myself, certainly recognize the current FIRE economic model and dependent welfare state is, as you observe, utterly doomed. (Or as Ned Flanders, would say, "done diddly done for".)

Yet, this in itself is the genesis of a new economic order. In reality, it will be nothing more than a realization of traditional policies of non-market intervention simply because the central state won't have sufficient resources in which to interfere.

So, where do we go from here? For one, we're going to see tremendous labor mobility. The herding analogy is used frequently here, and it is very appropriate. I can't predict which new product/service will be the next "big thing", but when it arrives, there will be a huge rush to be part of the action.

That's why home ownership isn't something to be encouraged as a one-size-fits-all policy. It makes no sense for the vast majority of people who need to be flexible enough to be able to pack up and move to where jobs are located.

Let's be honest - the entire history of the US (or civilization for that matter) has been one of mass migration. Locking people into some sort of mirage of equity appreciation was a fatal mistake of the FIRE economic promise.

My belief is that it will the next big trend will be the South. They are all low tax & regulated states, which will be necessary to encourage capital investment and facilitate a guaranteed future event: nuclear power.

Once this region has sufficient sources of cheap electricity (yeah, I know, I know - let's stick to metered cost rates built into prices), then that's where we'll see all the genetic research & production located.

Yes, horror of horrors, the future is genetically engineered food, medical, perhaps entertainment (who needs drugs when a simple flip of the switch in the brain can perform the same illusions?). And who's gonna stop it? The state? Don't make me laugh - as noted by many, it's dead.

Never discount human ingenuity. We'll move on and leave this ear behind for the historians to ponder.

I love the Wall Street comments and the illusionary "safety net". Can tell the writer is a upper class American that hasn't ever been out of work and had to depend on the "safey net". Everything helps but let me tell you, having been there, it doesn't "save" you and sure as hell isn't saving anyone right now.

Fine writing Dan W, I didn't figure for doom-in-my-time, I was more in the apres-moi camp, but I think for the worlds sake the sooner the better.

Now in your article you write: "... and now that illusion has been summarily smashed to bits on the rocky shores of a Ponzi economy and hundreds of trillions of dollars in unserviceable debt."

What I would like to know is how the 'unserviceable' part of that statement is arrived at. I also would like to know how many collars around our peon necks it would take to offset the bad in that debt.

Sorry to hear that you have lost the job but it is amazing how things turn up and give opportunity when shackles fall. I have been released since the '60's and by some trick of fate, ended up here and now with a net worth of over 1 million even if my house burns down or goes underwater to its chimney top. Actually my real treasure is a garden large enough to feed us 'as long as Grass grows or water runs'. Oops, I knew there was a catch!

Gee I wanted to get the wording right on that but looked in google as 'as long as rivers run and..' I could only get this stuff about hydroelectric damns, fried my brain down to its stem. Finally found the wording here

Peace Warren was absolutely abuzz with anticipation as night drew in. It was an exceptionally warm evening and cloudy. The 8 o’clock time for the festivities was nearing. The burrows and the sprawling area of shacks and makeshift hovels on the Warrens outskirts began to empty. There was excitement in the air as the passing bunnies laughed and pranced their way to the old Mercantile building where the party was to be held.

The great room on the second floor was resplendent with flowers, tables and chairs, a podium and of course, the bandstand. There was room for dancing. The guests poured through the doors with the eagerness of the long deprived.

The party commenced and carried on for some time. The music played and but was halted on cue various times for optimistic speeches and reports of progress and upturns in warrens far away. Toasts were offered to the future, the return of wealth, and the shine that the new warren would surely impart. The carrot and cabbage juice, having been smuggled in from farmer Snuffy’s on the frontier, was superb.

I won't argue about the garden in fact I more than agree and am ,in my dotage, thinking of placing my fiat funds in more. On the other matter , what country do you think I live in? Anyhow there is something everyone seems to forget that, as has been said, no one gets out of life alive.

"Ahimsa, listen to Max Keiser. He is as American as Kansas. It's just that for some mysterious reason, he can't get on American TV. Beats me."

Thanks for enlightening me... This is the first time I hear or recognize the name. I got no TV or stocks and all the finance I know is from TAE. I've spent a lifetime homeschooling kids, growing organic food, etc., and loving it. ;)

Keiser must be a voice for the voiceless if the US corporate media bans him.

"These people are not titans. These people are racketeers. And should be treated accordingly..."

Ok, guys- there's part of the problem. We believe our own propaganda- and myths.

How are racketeers REALLY treated??

We make movie stars out of them; and go to their cities to pour more money into their pockets, while we ooh and ah over them as they stand in the background; so mysterious and powerful, surrounded by beautiful women.

"Lawrence Summers, economic adviser to President Barack Obama, has often explained it this way: "No one in the history of the world ever washed a rented car.""

Not only is Summers totally disgusting, he is also a freaking idiot. Back in my pre-emancipation days when I had to wear a suit and tie, when I was traveling and making exec type calls, I use to run my rental through the car wash all the time. But Summers is both a mentally and physically slovenly person. Just look at him.

It's interesting but the near left is starting to go schizzy with The Manchurian Candidate. The Huffington Post's lead promotion today was Henry Blogett who explains exactly why the Weasel's plan is a Rico theft. Pretty soon understanding this scam is going to go mainstream. But the Weasel set it up so that he doesn't need Congressional approval other than not to let the FDIC fail. Interesting times. So Obama is just a babe in the woods being misled, like he didn't sell his soul to the banksta devils to get elected.

Re Dan's Piece

Yeah, growth is long over. We are heading for big problems regardless. But if we didn't have a bunch of drunken sociopaths at the wheel, we could have come in for a much softer landing rather than at 600 mph into the mountain top. Keiser is right - these people should be decapitated, but it won't happen. Though that French professor blowhard moron did wince when Keiser reminded him how the guillotine got it's first market promotion.

Stoneleigh,Do you believe that Canada will suffer the same fate as the US? I know Canadians who are convinced that the situation won't affect them and that the Canadian banks are highly rated.... and would this happen in the same time frame.

Summers is a two bit hoodlum, he takes his queue for personal dress, appearance and speech from old mobster movies. Must have absorbed too many 'role models' at a delicate age, it shows. He's a mook in a monkey suit.

I've heard that 'Bush the Least' was described as a monkey in a man suit.

The Criminal Class in general are more like venomous lizards in human suits.

As far as creepy Larry Summers goes...

his persona brings to mind that line in the movie 'Sleepy Hollow' where Johnny Depp's character barely escapes the headless horseman's axe in the windmill. Depp's little band is waiting to see if the HH gets out of the now furiously burning windmill, the little kid says to him,"Do you think he's dead?"

Most Americans envision growth as onward and upward: the rat race children of Manifest Destiny marching on to the next affluent subdivision. I understand Dan W was speaking to economic growth as we have known it, but planting the assertion that growth is dead only serves to harvest a semantically derived imagery which defeats the greater message. An assertion which the greater human tendency and affinity for purpose, meaning, personal growth and individual accomplishment militates against. Oppressed society springing forth from the grave of the corrupt and evil need not wave a white flag to a stagnation of deeper humanistic values.

Growth moves in more than one direction and it's high time society starts embracing town centers, community gardens, bike path tributaries and environmentally harmonious architecture, just to mention facets which just might sparkle under a new paradigm.

el gallinazoAs I said, you're an odd duck. You understand the issues. Oh, and a 9mm won't cut it, they'll want an assault rifle for intimidation. The entitlement mentality is lethal, and the criminals blind, live rounds barely stopped store raids after Hugo. I still have roots and visit, but no real-time. Glad you have a plan. Why Peru?Cold Camel

Question Re: The Internationl Monetary Fund - it makes no sense to me, it's just a big debt circle.

Many news articles are confidently reporting that the IMF will receive as much as $500 billion from the G20 nations. I assume this money is intended to bailout debtor nations that are on the verge of defaulting on their sovereign bonds. My basic question is: Where in the world are the G20 nations getting the money which they intend to give to the IMF? I don't understand how the IMF works given that all member nations are themselves in debt - the whole thing is just one big debt circle!! The IMF raises money from debtor nations, and then lends the money to other debtor nations that have lost the ability to borrow money in the private debt markets. Debtor lends to bigger debtor to avoid defaulting on earlier debts. My god this sounds ridiculous.

If the nations giving money to the IMF intend to raise that money through taxation, then aren't IMF donations really bailouts for international bankers who would otherwise face major losses on defaulted sovereign debt?

I don't know about that saner thing El G. My modus over 30 years in the Caribbean has been to be honest and up front about my insanity. My associates {mostly construction workers} know me as El Loco. If you ever check up on me you'll discover that right away. Yet, I much prefer to be taken for crazy {perhaps in the lupine sense} and avoided by thegarden variety problem boys we have in our tiny town. There are many first person tales here about my propensities {this particular island I have been on for 18 years} and the consensus has become that I'm probably better left alone than riled. There is a certain Aracatacan logic to my approach, and any of my many workers and clients would assure you of that. But I'm not sure this is exactly sanity.

Karl Denninger has a very concise, well stated and factual report this morning (4/1). One of his better commentaries that I have read. I would encourage people to look at what he says needs to be done and what will probably not be done due to the perceived sense of control that the powers that be think they have. John

Ah, it's so nice to welcome many newcomers to the "doomer" camp. Those of use who've been up to speed on peak oil through The Oil Drum are well versed in the vernacular, most particularly, @ Anon 9:12, the vast discrepancy between what needs to be done and what is or will be done. It is precisely that gap that leads one to describe oneself as a fast crash (Starcade), slow crash (a bunch of people), catabolic collapse (Greer, Stoneleigh), or just a realist (hi Todd!). Welcome to the red pill...

Ilargi has joked in the past about creating a religion, and it seems like TAE followers increasingly don’t get the joke, or maybe it’s not a joke. Since Ilargi means moon , followers could be called moonies. Or since he is Canadian, loonies. Or following Dan, doomies. I will call them LMDs for short. I wasn’t sure what to make of Ilargi’s deadpan earnest, or tounge-in-cheek, or something else endorsement of Dan Ws’ nonsense intro from yesterday. I am banned from every choir since I can’t sing the tune, so with nothing to lose I will take issue with Dan W.

"And without sustained growth, we die." What horse droppings, honestly, get a grip. It’s time to step back and reflect on what growth actually is:

1) Growth is a fetish of sorts in the American political landscape, because of the particular history of that country. Growth is the alternative to redistribution. America has always had a very nervous relationship with socialism or anything smelling like it. Rightward politicians long ago nominated growth as an alternative to social policy – don’t take from the rich to help the poor; grow the economy and everyone gets more. Leftward politicians went with the flow because they had no convincing argument against. Yes, growth is a piece of ideological duct-tape in American life, and if growth fails to materialize, the political discussion will necessarily change, which is not the same as instant death.

2) Growth is when some numbers cooked up by economists are larger than similar numbers cooked up by economists in the past (possibly using the same recipe, but not necessarily.) Several well-known political motivations exist for adding extra whipped cream to the growth numbers, so even within the arcane and ever-shifting definitions of economists, the numbers are squishy. And no one truly thinks that those numbers (whether growing or not) are truly the same as happiness or quality of life or “standard of living.” The NSA spooks who monitor your blog posts and emails are part of GDP. Nuff said. Yes, politicians promise growth, and strut their well-cooked numbers like horny peacocks. You get from there to we’re all dead by losing your grip on reality.

My grandparents, born around the turn of the last century, died without ever having owned a mechanical dishwasher, and didn’t fancy themselves poor or deprived as a result. I am 40-something and never owned a mechanical dishwasher. Life is great. One of the paradoxes of LMD religion is – most followers are frugal, debt-free types who boycotted the great consumer excesses of our age. LMDs have abundant personal experience of how simplifying, down-shifting, DIYing, and cutting expenses yields an adequate if not superior life. Yet LMDs also fervently believe that simplifying, down-shifting, and cutting expenses will destroy society in a fireball. Pause to scratch head … There is an obvious treadmill aspect to bubble consumerism – you need the mechanical dishwasher so you have time to work long hours to pay for the mechanical dishwasher. We can, of course, cast doubt on the sanity of that life mode, but the good news is that it breaks down more gently than expected. Once you are under-employed and can’t afford the mechanical dishwasher, you have plenty of time to wash the dishes by hand.

It’s true that a political rupture is looming. Social Security was formerly called the third rail of American politics, but now the Washington crowd is so firmly in the grip of AIPAC, Wall Street, the MIC, and other corporate lobbies that they actually believe depriving voters of their retirement security is the path of least resistance. (Jon Stewart is one lucky guy. You couldn’t make this stuff up, but he doesn’t need to.) Yes, a political rupture is looming. But history is full of those. Nations are in a strange way permanently adolescent, always obsessed with the present – how the latest zit or breakup is the end of the world and you don’t love me anymore and why was I ever born. But any long view reminds us that regimes have blown up and been replaced countless times in history and life goes on (for the survivors, who are usually a substantial majority.) LMDs pride themselves in taking the long view, so they more than most should realize this. I am particularly puzzled by the view that everything in our society is about to collapse except the debt, as if somehow the debt is the only solid thing in our society. Pause to scratch head … When people perceive that more important aspects of society are threatened, they will cast off the debt. Just cancel it in various ways. Society will not be crucified on the cross of the debt.

I realize there are substantial longer-term arguments about the carrying capacity of the earth given a rising population and diminishing fossil fuel stores. Over the course of decades there might be famines, wars, etc. as humanity adjusts. But that is a long-term slow collapse scenario, not "without sustained growth, we die."

Much has been written about drug money being laundered in our community. Some estimates have it as high as $500 billion per year. In fact most of our bull market that started in 1981/1982 coincided with a boom in recreational cocaine use. There was a famous photograph in 1998 or 1999 I remember of Dick Grasso and company making a personal appearance at a Columbian F.A.R.C rebel compound pitching them on why they should invest there money in the NYSE.Google the names Gary Webb and Mike Ruppert and Catherine Austin Fitts for some fascinating information about the massive, cheap liquidity drugs offer our companies and economy.

"MS. WHITNEY: There's nothing more important to that global economy, global market, than the U.S. consumer. We have got to focus on getting the U.S. consumer liquidity, empowering the U.S. consumers, small business, the local businesses, to grow."

Well, rats. Major disappointment there. Lordy, Friedman is more enlightened now. He's changing his thinking anyway- this is "all we have to do is go back to the good old days" thinking. sigh.

"But any long view reminds us that regimes have blown up and been replaced countless times in history and life goes on (for the survivors, who are usually a substantial majority"

That might have been true for the most part in history until now.

History is moving much faster than it ever has, it's velocity has increased by magnitudes.

Napoleon's army's moved at the same speed as Caesar's. It was only Hilter's Blitzkrieg that increased the speed of modern army's past Napoleon's and even at that, horses had to move most of the German army's logisitcs to the staging areas.

A modern submarine launched supersonic missile is designed to precisely deliver a nuclear payload on target at ranges in excess of 1100 miles within 10-15 minutes of launch.

That is how fast history, and thus decision making, has accelerated.

A submarine parked just off the east coast in international waters could launch and vaporize a city before you got your 'double no foam skim latte' delivered to your table.

In the finance world, a virtual bank run, powered by 'super' computers, could transfer billions (if not trillions) of dollars in less than a hour and would have a similar effect in the world of finance as the missile launch did to the physical infrastructure.

A hundred years ago this was unheard of. My relatives still used horse carts on their farm.

World leaders can not react any better or quicker to a virtual bank run than they could to a missile arriving in their capital city in minutes.

The rules for building and collapsing an empire have moved beyond being "As Corny As Kansas In August" and have even moved beyond the Emerald City. We're not even in OZ anymore.

Mugabe- there's yet another aspect to economic growth, which I have not seen mentioned anywhere. Perhaps it's actually my observation?

"Growth", defined as an increase in the returns on an enterprise- makes it much much easier- to steal.

Say you have a very small tin-mining operation; a mine owner, and 10 employees.

When it starts up, the owner says "look, we're all in this together, right? You each get 1 share of the profits; and I get 2; because I'm the owner." Sounds good.

Everybody knows what goes in, and what goes out, and what they earn. Then- the operation grows- the customers like the product. Now there are 20 employees- and a bookkeeper- and the owner.

If you understand arithmetic- just that proposition should make alarm bells go off. The opportunities for false reporting, false bookkeeping, etc- just jumped by an order of magnitude. The owner of course is handling the sales; only he knows what comes in- and it winds up, very quickly, that the miners are getting 1 share each (or less) the bookkeeper 4, for keeping his mouth shut, and the owner 50.

And if the enterprise grows a little more each year- it's almost impossible to catch up with the theft.

“It would be easy to think that life for all those “financial engineers”, the bankers focused on default probabilities and credit ratings arbitrage who were crucial to the boom in mortgage bonds and other structured niceties, was over – professionally at least.

However, for some the job is busier than ever – and their work is a big part of the bump in first-quarter revenues in the debt businesses of their investment bank employers.

[…]

Some of those involved fear that if they speak about it, they may then have to spend many hours bringing regulators up to speed, rather than earning money for their companies.

I was listening to Max Keiser's tweetcast 7 (min 4:20) and he distilled a bunch of thoughts I've been trying to condense about what is global finance built on right now.

Here's the gist.

The world banking system runs on a fiat currency system which is not backed up by anything tangible, like gold or wheat or oil, but by 'Fiat', a random assignment of value by the host government of that currency. Sweet.

Each nations fiat currency system is in turn backed up by a 'fractional reserve banking system' .

Theoretically a banks holds in reserve only a fraction of the deposits (10-12%) on their balance sheet and loans out the rest.

In the past two years or so during this crisis, the 'fractional reserve banking system' is a misnomer, it's actually now, a 'negative reserve banking system'.

Their are no longer any fractional reserves, they're Gone Baby.

The world's new improved 'Negative Reserve Banking System' is backed up essentially by Credit Default Swaps.

Credit Default Swaps (which in reality are an form of 'anti-currency') have become the world financial system's new defacto Global Currency.

CDS's have become the new global currency system Because they accurately reflect the True Nature of the 'Negative Reserve Banking System' of 'upside down' economics.

Max then goes to to say that the world financial oligarchs who screwed up the system to begin with, now want to use this perverse inverted 'Negative Reserve Banking System' to reintroduce a form of indentured servitude for the bulk of the world's population.

Indentured servitude or serfdom or the Neo-feudal system is the only way to back up the 'Negative Reserve Banking System' and balance debt off the global books.

Only pledging human blood,sweat and tears can back up this global fiat currency arrangement, not gold or food or oil, slave labor ultimately pays off DEBT.

People work for decades at sub sub wages to pay off the gambling debts of the Financial Oligarchs.